IMPORTANT NOTICE - RNS Submit · under the United States Securities Act of 1933, as amended (the...

IMPORTANT NOTICE

THIS OFFERING IS AVAILABLE ONLY TO INVESTORS WHO ARE EITHER (1) QIBS (AS DEFINED BELOW)UNDER RULE 144A WHO ARE ALSO QUALIFIED PURCHASERS (AS DEFINED BELOW) OR (2) NON-U.S.PERSONS (AS DEFINED IN REGULATION S) OUTSIDE OF THE UNITED STATES.

IMPORTANT: You must read the following before continuing. The following applies to the Offering Memorandum (this“Offering Memorandum”) following this page, and you are therefore advised to read this carefully before reading, accessing ormaking any other use of the Offering Memorandum. In accessing the Offering Memorandum, you agree to be bound by thefollowing terms and conditions, including any modifications to them any time you receive any information from the Bank as aresult of such access.

THE ATTACHED OFFERING MEMORANDUM MAY NOT BE FORWARDED OR DISTRIBUTED OTHER THAN ASPROVIDED BELOW AND MAY NOT BE REPRODUCED IN ANY MANNER WHATSOEVER. THE ATTACHEDOFFERING MEMORANDUM MAY ONLY BE DISTRIBUTED OUTSIDE THE UNITED STATES TO PERSONS THAT ARENOT U.S. PERSONS AS DEFINED IN, AND IN RELIANCE ON, REGULATION S UNDER THE U.S. SECURITIES ACT OF1933, AS AMENDED (THE “SECURITIES ACT”), OR WITHIN THE UNITED STATES TO QIBS WHO ARE QUALIFIEDPURCHASERS (EACH AS DEFINED BELOW) IN ACCORDANCE WITH RULE 144A UNDER THE SECURITIES ACT(“RULE 144A”). ANY FORWARDING, DISTRIBUTION OR REPRODUCTION OF THE ATTACHED DOCUMENT INWHOLE OR IN PART IS PROHIBITED. FAILURE TO COMPLY WITH THIS DIRECTIVE MAY RESULT IN A VIOLATIONOF THE SECURITIES ACT OR THE APPLICABLE LAWS OF OTHER JURISDICTIONS. IF YOU HAVE GAINED ACCESSTO THIS TRANSMISSION CONTRARY TO ANY OF THE FOREGOING RESTRICTIONS, YOU ARE NOT AUTHORIZEDAND WILL NOT BE ABLE TO PURCHASE ANY OF THE SECURITIES DESCRIBED THEREIN.

NOTHING IN THIS ELECTRONIC TRANSMISSION CONSTITUTES AN OFFER OF SECURITIES FOR SALE IN ANYJURISDICTION. THE SECURITIES HAVE NOT BEEN, AND WILL NOT BE, REGISTERED UNDER THE SECURITIESACT OR THE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR OTHER JURISDICTION. THESECURITIES MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT (1) INACCORDANCE WITH RULE 144A UNDER THE SECURITIES ACT TO PERSONS REASONABLY BELIEVED TO BEQUALIFIED INSTITUTIONAL BUYERS (EACH A “QIB”) WITHIN THE MEANING OF RULE 144A AND QUALIFIEDPURCHASERS AS DEFINED IN SECTION 2(a)(51)(A) OF THE U.S. INVESTMENT COMPANY ACT OF 1940 (EACH A“QUALIFIED PURCHASER”) WHO REPRESENT THAT (A) THEY ARE QUALIFIED PURCHASERS WHO ARE QIBSWITHIN THE MEANING OF RULE 144A, (B) THEY ARE NOT BROKER DEALERS WHO OWN AND INVEST ON ADISCRETIONARY BASIS LESS THAN U.S.$25 MILLION IN SECURITIES OF UNAFFILIATED ISSUERS, (C) THEY ARENOT A PARTICIPANT DIRECTED EMPLOYEE PLAN, SUCH AS A 401(K) PLAN, (D) THEY ARE ACTING FOR THEIROWN ACCOUNT, OR THE ACCOUNT OF ONE OR MORE QIBS, EACH OF WHICH IS ALSO A QUALIFIEDPURCHASER, (E) THEY ARE NOT FORMED FOR THE PURPOSE OF INVESTING IN THE SECURITIES OR THEISSUER, (F) EACH ACCOUNT FOR WHICH THEY ARE PURCHASING WILL HOLD AND TRANSFER AT LEASTU.S.$200,000 IN PRINCIPAL AMOUNT OF SECURITIES AT ANY TIME, (G) THEY UNDERSTAND THAT THE ISSUERMAY RECEIVE A LIST OF PARTICIPANTS HOLDING POSITIONS IN ITS SECURITIES FROM ONE OR MORE BOOKENTRY DEPOSITORIES AND (H) THEY WILL PROVIDE NOTICE OF THESE TRANSFER RESTRICTIONS TO ANYSUBSEQUENT TRANSFEREES OR (2) IN A OFFSHORE TRANSACTION TO A PERSON THAT IS NOT A U.S. PERSONIN ACCORDANCE WITH RULE 903 OR RULE 904 OF REGULATION S UNDER THE SECURITIES ACT.

Confirmation of your representation: In order to be eligible to view the attached Offering Memorandum or make an investmentdecision with respect to the securities, you must be (i) a person other than a U.S. person (within the meaning of Regulation S underthe Securities Act) or (ii) a QIB who is a Qualified Purchaser. By accepting the e-mail and accessing the attached OfferingMemorandum, you shall be deemed to have represented to us that you are not a U.S. person or that you are a QIB who is aQualified Purchaser and that you consent to delivery of such Offering Memorandum by electronic transmission.

You are reminded that this Offering Memorandum has been delivered to you on the basis that you are a person into whosepossession this Offering Memorandum may be lawfully delivered in accordance with the laws of the jurisdiction in which you arelocated and you may not, nor are you authorized to, deliver or disclose the contents of this Offering Memorandum to any otherperson.

The materials relating to the offering do not constitute, and may not be used in connection with, an offer or solicitation in any placewhere offers or solicitations are not permitted by law. If a jurisdiction requires that the offering be made by a licensed broker ordealer and the underwriters or any affiliate of the underwriters is a licensed broker or dealer in that jurisdiction, the offering shallbe deemed to be made by the underwriters or such affiliate on behalf of the Issuer in such jurisdiction.

This Offering Memorandum has been sent to you in an electronic form. You are reminded that documents transmitted via thismedium may be altered or changed during the process of electronic transmission and consequently, none of Barclays Bank PLC,Citigroup Global Markets Limited, ING Bank N.V., London Branch and Standard Chartered Bank, as Initial Purchasers, or anyperson who controls any of them, nor any director, officer, employee nor agent of any of them or affiliate of any such personaccepts any liability or responsibility whatsoever in respect of any difference between the Offering Memorandum distributed toyou in electronic format and the hard copy version available to you on request from any of the Initial Purchasers.

You are responsible for protecting against viruses and other destructive items. Your use of this e-mail is at your own risk and it isyour responsibility to take precautions to ensure that it is free from viruses and other items of a destructive nature.

This Offering Memorandum is being distributed only to and directed only at (i) persons who are outside the United Kingdom, (ii)persons who have professional experience in matters relating to investments falling within Article 19(5) of The Financial Servicesand Markets Act 2000 (Financial Promotion) Order 2005, or (iii) those persons to whom it may otherwise lawfully be distributed(all such persons together being referred to as “relevant persons”). This Offering Memorandum is directed only at relevantpersons and must not be acted on or relied on by persons who are not relevant persons. Any investment or investment activity towhich this Offering Memorandum relates is available only to relevant persons and will be engaged in only with relevant persons.

OFFERING MEMORANDUM

Türkiye İhracat Kredi Bankası A.Ş. (Export Credit Bank of Turkey, Inc.)a Turkish banking institution organized as a joint stock company

U.S.$500,000,000 5.875% Notes due 2019Türkiye İhracat Kredi Bankası A.Ş. (Export Credit Bank of Turkey, Inc.), a Turkish banking institution organized as a joint stock company (the“Bank” or the “Issuer”), is issuing U.S.$500,000,000 5.875% Notes due 2019 (the “Notes”). The Notes have not been and will not be registeredunder the United States Securities Act of 1933, as amended (the “Securities Act”), or the securities or “blue sky” laws of any state of the UnitedStates of America (“United States” or “U.S. ”), the Republic of Turkey (“Turkey”), the United Kingdom or any other jurisdiction, and are beingoffered: (a) for sale in the United States (the “U.S. Offering”) to qualified institutional buyers (each a “QIB”) as defined in Rule 144A (“Rule144A”) under the Securities Act that are also qualified purchasers (“QPs”) as defined in Section 2(a)(51)(A) of the U.S. Investment Company Actof 1940, as amended (the “Investment Company Act”), in each case acting for their own account of one or more QIBs who are also QPs in relianceon the exemption from registration provided by Rule 144A and (b) for sale outside the United States (the “International Offering” and, with theU.S. Offering, the “Offering”) to persons other than U.S. persons in reliance upon Regulation S (“Regulation S”) under the Securities Act. Eachpurchaser of the Notes in making its purchase will be deemed to have made certain acknowledgements, representations and agreements. For adescription of certain restrictions on the sale and transfer of the Notes, see “Plan of Distribution,” beginning on page 169 and “TransferRestrictions,” beginning on page 172.

INVESTING IN THE NOTES INVOLVES RISKS. PROSPECTIVE INVESTORS SHOULD CONSIDER THE FACTORS SET FORTHUNDER “RISK FACTORS” BEGINNING ON PAGE 10 OF THIS OFFERING MEMORANDUM (the “Offering Memorandum”).

As described further herein, the gross proceeds of the Notes will be used by the Issuer for the Issuer’s export and project financing purposes.

The Notes are not guaranteed by and are not debts or obligations of the Republic of Turkey.

Interest on the Notes will be paid on 24 April and 24 October in each year; provided that if any such date is not a Business Day (as defined herein),then such payment will be made on the next Business Day. Principal of the Notes is scheduled to be paid on 24 April 2019, but may be paid earlierunder certain circumstances as further described herein. The Notes initially will be sold to investors at a price equal to 98.927% of the principalamount thereof.

Application has been made to the Financial Services Authority in its capacity as competent authority under the Financial Services and Markets Act2000 (the “UK Listing Authority”) for the Notes to be admitted to listing on the official list of the UK Listing Authority (the “Official List”) andto the London Stock Exchange plc (the “London Stock Exchange”) for such Notes to be admitted to trading on the London Stock Exchange’sRegulated Market (the “Market”). References in this Offering Memorandum to the Notes being “listed” (and all related references) shall meanthat the Notes have been admitted to the Official List and have been admitted to trading on the Market. The Market is a regulated market for thepurposes of Directive 2004/39/EC of the European Parliament and of the Council on markets in financial instruments.

Application has been made to the Capital Markets Board of Turkey (the “CMB”) in its capacity as competent authority under Law No. 2499 of theRepublic of Turkey relating to capital markets (the “Capital Markets Law”) for the registration of the Notes with the CMB and the issuance ofthe Notes by the Bank outside Turkey. The Notes cannot be sold outside Turkey before they are registered with the CMB. The issuance of the Noteswas approved by the CMB on 23 March 2012 and the registration certificate relating to the Notes is expected to be obtained from the CMB on orabout 20 April 2012.

The Notes are expected on issue to be rated BB by Standard & Poor’s Credit Market Services Europe Limited (“Standard & Poor’s”) and Ba1 byMoody’s Investors Services Ltd (“Moody’s”). However, the Bank’s Ba1 foreign currency issuer and long-term senior unsecured debt ratings wereplaced under review on 16 March 2012 for a possible downgrade by Moody’s because of a change in methodology. As at the date of this OfferingMemorandum, Turkey’s foreign currency long-term debt was rated Ba2 by Moody’s, BB by Standard & Poor’s and BB+ by Fitch Ratings Limited.(“Fitch”, and together with Moody’s and Standard & Poor’s, the “Rating Agencies”). A rating is not a recommendation to buy, sell or holdsecurities and may be subject to revision, suspension or withdrawal at any time by the assigning rating organization. As at the date of this OfferingMemorandum, each of the Rating Agencies is established in the European Union (“EU”) and registered under Regulation (EU) No 1060/2009, asamended (the “CRA Regulation”).

All payments in respect of the Notes by or on behalf of the Issuer shall be made without withholding or deduction for, or on account of,any present or future Taxes (as defined in Condition 9) imposed or levied by or on behalf of a Relevant Jurisdiction (as defined in Condition9), unless the withholding or deduction of the Taxes is required by law. In that event, the Issuer will pay such additional amounts as maybe necessary in order that the net amounts received by the Noteholders after the withholding or deduction shall equal the respectiveamounts which would have been receivable in respect of the Notes in the absence of such withholding or deduction. The withholding taxrate on interest payments in respect of bonds issued by Turkish entities outside of Turkey varies depending on the original maturity of suchbonds as specified under decree numbered 2010/1182 dated 29 December 2010 (the “2010 Decree”). Pursuant to the 2010 Decree, (i) withrespect to bonds with a maturity of less than 1 year, the withholding tax rate on interest is 10%, (ii) with respect to bonds with a maturityof at least 1 year and less than 3 years, the withholding tax rate on interest is 7%, (iii) with respect to bonds with a maturity of at least 3years and less than 5 years, the withholding tax rate on interest is 3%, and (iv) with respect to bonds with a maturity of 5 years and more,the withholding tax rate on interest is 0%.

For a more detailed description of the Notes, see “Conditions of the Notes” beginning on page 144.

The Notes are being offered under Rule 144A and under Regulation S by Barclays Bank PLC, Citigroup Global Markets Limited, ING Bank N.V.,London Branch and Standard Chartered Bank (collectively, the “Initial Purchasers”), subject to their acceptance and right to reject orders in wholeor in part. The Notes will initially be represented by global certificates in registered form (the “Global Certificates”). The Notes offered and soldin the United States to QIBs who are also QPs in reliance on Rule 144A (the “Rule 144A Notes”) will be represented by beneficial interests in oneor more permanent global certificates in fully registered form without interest coupons (the “Restricted Global Certificate”) and will be registeredin the name of Cede & Co., as nominee for DTC and will be deposited on or about the Closing Date with Citibank, N.A., London Branch in itscapacity as custodian (the “Custodian”) for DTC. The Notes offered and sold outside the United States to persons other than U.S. persons inreliance on Regulation S (the “Regulation S Notes”) will be represented by beneficial interests in a single, permanent global certificate in fullyregistered form without interest coupons, the “Unrestricted Global Certificate”) and will be registered in the name of Citvic Nominees Limitedas nominee, and will be deposited on or about the Closing Date with Citibank Europe plc as common depositary for, and in respect of interestsheld through, Euroclear Bank S.A./N.V. (“Euroclear”) and Clearstream Banking, société anonyme (“Clearstream, Luxembourg”). It is expectedthat the Global Certificates will be delivered against payment therefor in immediately available funds on 20 April 2012 (i.e., the fifth business dayfollowing the date of pricing of the Notes (such date being referred to herein as the “Closing Date” and such settlement cycle being herein referredto as “T+5”)).

Joint Lead ManagersBarclays Citigroup ING Standard Chartered Bank

The date of this Offering Memorandum is 18 April 2012.

This offering memorandum (the “Offering Memorandum”) constitutes a Prospectus for the purpose ofArticle 5 of Directive 2003/71/EC (the “Prospectus Directive”) and for the purpose of giving informationwith regard to the Issuer and the Notes which, according to the particular nature of the Issuer and the Notes,is necessary to enable investors to make an informed assessment of the assets and liabilities, financialposition, profit and losses and prospects of the Issuer and of the rights attaching to the Notes.

The Issuer, having made all reasonable enquiries, confirms that this Offering Memorandum contains allinformation which is material in the context of the issuance and offering of the Notes, that the informationcontained in this Offering Memorandum is true and accurate in all material respects and is not misleading,that the opinions and intentions expressed in this Offering Memorandum are honestly held and that there areno other facts the omission of which would make this Offering Memorandum or any of such information orthe expression of any such opinions or intentions misleading in any material respect and all reasonableenquiries have been made by the Bank to ascertain such facts and to verify the accuracy of all suchinformation and statements.

This Offering Memorandum does not constitute an offer of, or an invitation by or on behalf of the Issuer orthe Initial Purchasers (as defined below) to subscribe for or purchase, any Notes. The distribution of thisOffering Memorandum and the offer or sale of the Notes in certain jurisdictions is restricted by law. Personsinto whose possession this Offering Memorandum may come are required by the Issuer and the InitialPurchasers to inform themselves about and to observe any such restrictions.

No person has been authorized in connection with the offering of the Notes to give any information or makeany representation regarding the Issuer, the Initial Purchasers or the Notes other than as contained in thisOffering Memorandum. Any such representation or information must not be relied upon as having beenauthorized by the Issuer or the Initial Purchasers. The delivery of this Offering Memorandum at any timedoes not imply that there has been no change in the Issuer’s affairs or that the information contained in it iscorrect as at any time subsequent to its date. This Offering Memorandum may only be used for the purposefor which it has been published.

No representation or warranty, express or implied, is made by the Initial Purchasers as to the accuracy orcompleteness of the information set forth in this document, and nothing contained in this document is, orshall be relied upon as, a promise or representation, whether as to the past or the future. None of the InitialPurchasers assumes any responsibility for the accuracy or completeness of the information set forth in thisdocument. Each person contemplating making an investment in the Notes must make its own investigationand analysis of the creditworthiness of the Issuer and its own determination of the suitability of any suchinvestment, with particular reference to its own investment objectives and experience, and any other factorswhich may be relevant to it in connection with such investment.

The Notes may not be a suitable investment for all investors. Each potential investor in the Notes mustdetermine the suitability of that investment in light of its own circumstances. In particular, each potentialinvestor should: (i) have sufficient knowledge and experience to make a meaningful evaluation of the Notes,the merits and risks of investing in the Notes and the information contained in this Offering Memorandumor any applicable supplement; (ii) have access to, and knowledge of, appropriate analytical tools to evaluate,in the context of its particular financial situation, an investment in the Notes and the impact such investmentwill have on its overall investment portfolio; (iii) have sufficient financial resources and liquidity to bear allof the risks of an investment in the Notes, including where the currency for principal and interest payments(the U.S. dollar) is different from the potential investor’s currency; (iv) understand thoroughly the terms ofthe Notes and be familiar with the behavior of the financial markets in which they participate; and (v) be ableto evaluate (either alone or with the help of a financial adviser) possible scenarios for economic conditions,interest rate and other factors that may affect its investment and its ability to bear the applicable risks.

None of the Issuer or the Initial Purchasers or any of their respective representatives is making anyrepresentation to any offeree or purchaser of the Notes regarding the legality of any investment by suchofferee or purchaser under appropriate legal investment or similar laws. Each investor should consult withits own advisers as to the legal, tax, business, financial and related aspects of a purchase of the Notes.

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GENERAL INFORMATION

In this Offering Memorandum, the “Bank” or the “Issuer” refers to Türkiye İhracat Kredi Bankası A.Ş.,(Export Credit Bank of Turkey, Inc.).

Unless otherwise indicated, “Noteholder” refers to the registered holder of any Note. “Beneficial Owner”refers to an owner of a beneficial interest in any Note.

Unless otherwise indicated, all references in this Offering Memorandum to “Initial Purchasers” refer toBarclays Bank PLC, Citigroup Global Markets Limited, ING Bank N.V., London Branch and StandardChartered Bank.

Unless otherwise indicated, references to “resident” herein refer to tax residents of Turkey and references to“non-resident” herein refer to persons who are not tax residents of Turkey.

The Notes have not been and will not be registered under the Securities Act or under the securities or “bluesky” laws of any state of the United States or any other U.S. jurisdiction. Each investor, by purchasing a Note(or a beneficial interest therein), agrees that the Notes (or beneficial interests therein) may be reoffered,resold, pledged or otherwise transferred only upon registration under the Securities Act or pursuant to theexemptions therefrom described under “Transfer Restrictions.” Each investor also will be deemed to havemade certain representations and agreements as described therein. Any resale or other transfer, or attemptedresale or other attempted transfer, that is not made in accordance with the transfer restrictions may subjectthe transferor and transferee to certain liabilities under applicable securities laws.

The Offering of the Notes has been authorized by the CMB only for the purpose of sale of the Notes outsideTurkey in accordance with Article 15/b of Decree 32 on the Protection of the Value of the Turkish Currency(as issued in August 1989) (“Decree 32”), and Articles 6 and 25 of Communiqué Serial: II, No: 22 on thePrinciples on the Registration and Sale of Debt Instruments (“Communiqué”) and, accordingly, the Notes(or beneficial interests therein) will neither be offered or sold to Turkish residents in accordance with theBanking Regulation and Supervision Agency (the “BRSA”) decision dated 6 May 2010 (No. 3665) (asnotified by the BRSA in its letter to the Turkish Banking Association dated 10 May 2010 and numberedB.02.1. BDK. D.1.1 00.00 31.2 9392) nor will they be offered or sold within Turkey under current capitalmarkets regulations. The decision of the BRSA only applies to the initial offer and sale of the Notes by theBank at the time of their issue, and pursuant to Article 15/d/ii of Decree 32, Turkish residents are permittedto purchase or to sell the Notes in the secondary markets provided that they purchase or sell such Notes (orbeneficial interests) in the financial markets outside of Turkey and such sale and purchase is made throughbanks and/or licensed brokerage institutions authorized pursuant to CMB regulations.

Except as described in this Offering Memorandum, beneficial interests in the Global Certificates will berepresented through accounts of financial institutions acting on behalf of beneficial owners as direct andindirect participants in DTC, Euroclear and Clearstream, Luxembourg. Except as described in this OfferingMemorandum, owners of beneficial interests in the Global Certificates will not be entitled to have the Notesregistered in their names, will not receive or be entitled to receive physical delivery of the Notes in definitiveform and will not be considered holders of the Notes under the Notes and the Agency Agreement.

An application has been made to admit the Notes to listing on the London Stock Exchange; however, noassurance can be given that such application will be accepted.

In connection with the issue of Notes to be underwritten by the Initial Purchasers, the InitialPurchaser or Initial Purchasers (if any) named as the stabilizing manager(s) (the “StabilizingManager(s)”) (or persons acting on behalf of any Stabilizing Manager(s)) in this OfferingMemorandum may over-allot Notes or effect transactions with a view to supporting the market priceof the Notes at a level higher than that which might otherwise prevail. However, there is no assurancethat the Stabilizing Manager(s) (or persons acting on behalf of a Stabilizing Manager) will undertakeany stabilization action. Any stabilization action may begin on or after the date on which adequatepublic disclosure of the terms of the offer of the relevant issue of Notes is made and, if begun, may beended at any time, but it must end no later than the earlier of 30 days after the Issue Date and 60 days

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after the date of the allotment of the relevant Notes. Any stabilization action or over-allotment mustbe conducted by the relevant Stabilizing Manager(s) (or persons acting on behalf of any StabilizingManager(s)) in accordance with all applicable laws and rules. Notwithstanding anything herein to thecontrary, the Bank may not (whether through over-allotment or otherwise) issue more Notes than havebeen registered with the CMB.

Other than the registration with the CMB, the Notes have not been and will not be approved or disapprovedby any state securities commission or any other U.S., United Kingdom or other regulatory authority, nor haveany of the foregoing authorities passed upon or endorsed the merits of this Offering or the accuracy oradequacy of this Offering Memorandum. Any representation to the contrary may be a criminal offense.

The distribution of this Offering Memorandum and the offering of the Notes (and beneficial interests therein)in certain jurisdictions may be restricted by law. Persons that come into possession of this OfferingMemorandum are required by the Bank and the Initial Purchasers to inform themselves about and to observeany such restrictions.

This Offering Memorandum does not constitute an offer to sell or the solicitation of an offer to buy the Notes(or any beneficial interest therein) in any jurisdiction in which such offer or solicitation is unlawful. Inparticular, there are restrictions on the distribution of this Offering Memorandum and the offer and sale ofthe Notes (and beneficial interests therein) in the United States, Turkey, the United Kingdom and numerousother jurisdictions.

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RESPONSIBILITY STATEMENT

The Issuer accepts responsibility for the information contained in this Offering Memorandum. To the best ofthe knowledge and belief of the Issuer (which has taken all reasonable care to ensure that such is the case),the information contained in this Offering Memorandum is in accordance with the facts and contains noomission likely to affect the import of such information.

The Issuer has derived substantially all of the information contained in this Offering Memorandumconcerning the Turkish market and its competitors, which may include estimates or approximations, frompublicly available information, including press releases and filings made under various securities laws.Unless otherwise indicated, all data relating to the Turkish banking sector in this Offering Memorandumhave been obtained from the BRSA’s website at www.bddk.org.tr and all data relating to the Turkisheconomy, including statistical data, have been obtained from TURKSTAT’s website at www.turkstat.gov.tr,the website of the Turkish Central Bank (Türkiye Cumhuriyet Merkez Bankası, the “Central Bank”, or“CBRT”) at www.tcmb.gov.tr, the Turkish Banking Association’s website www.tbb.org.tr and the TurkishTreasury’s website at www.hazine.gov.tr. Data have been downloaded/observed on various days during themonths of March and April 2012 and may be the result of calculations made by the Bank and therefore maynot appear in the exact same form on such websites or elsewhere. Such websites should not be deemed to bea part of, or to be incorporated into, this Offering Memorandum. Unless otherwise indicated, the sources forstatements and data concerning the Bank and its business are based on best estimates and assumptions of theBank’s management. Management believes that these assumptions are reasonable and that its estimates havebeen prepared with due care. The data concerning the Bank included herein, whether based on externalsources or based on the Bank’s management internal research, constitute the best current estimates of theinformation described.

Where third party information has been used in this Offering Memorandum, the source of such informationhas been identified. In the case of the presented statistical information, similar statistics may be obtainablefrom other sources, although the underlying assumptions and methodology, and consequently the resultingdata, may vary from source to source. Where information has been sourced from a third party, suchpublications generally state that the information they contain has been obtained from sources believed to bereliable, but that the accuracy and completeness of such information is not guaranteed. Such data, whilebelieved to be reliable and accurately extracted by the Bank for the purposes of this Offering Memorandum,have not been independently verified by the Bank or any other party and you should not place undue relianceon such data included in this Offering Memorandum. As far as the Bank is aware and able to ascertain fromthe information published by such third party sources, this information has been accurately reproduced andno facts have been omitted which would render the reproduction of this information inaccurate ormisleading.

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NOTICE TO NEW HAMPSHIRE RESIDENTS

NEITHER THE FACT THAT A REGISTRATION STATEMENT OR AN APPLICATION FOR A LICENSEHAS BEEN FILED UNDER CHAPTER 421-B OF THE NEW HAMPSHIRE REVISED STATUTESANNOTATED (THE “RSA”) WITH THE STATE OF NEW HAMPSHIRE NOR THE FACT THAT ASECURITY IS EFFECTIVELY REGISTERED OR A PERSON IS LICENSED IN THE STATE OF NEWHAMPSHIRE CONSTITUTES A FINDING BY THE SECRETARY OF STATE THAT ANY DOCUMENTFILED UNDER RSA 421-B IS TRUE, COMPLETE AND NOT MISLEADING. NEITHER ANY SUCHFACT NOR THE FACT THAT AN EXEMPTION OR EXCEPTION IS AVAILABLE FOR A SECURITYOR A TRANSACTION MEANS THAT THE NEW HAMPSHIRE SECRETARY OF STATE HAS PASSEDIN ANY WAY UPON THE MERITS OR QUALIFICATIONS OF, OR RECOMMENDED OR GIVENAPPROVAL TO, ANY PERSON, SECURITY OR TRANSACTION. IT IS UNLAWFUL TO MAKE, ORCAUSE TO BE MADE, TO ANY PROSPECTIVE PURCHASER, CUSTOMER OR CLIENT ANYREPRESENTATION INCONSISTENT WITH THE PROVISIONS OF THIS PARAGRAPH.

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TURKISH TAX CONSIDERATIONS

All payments in respect of the Notes by or on behalf of the Issuer shall be made without withholding ordeduction for, or on account of, any present or future Taxes (as defined in the Conditions) imposed or leviedby or on behalf of a Relevant Jurisdiction (as defined in the Conditions), unless the withholding or deductionof the Taxes is required by law. In that event, the Issuer will pay such additional amounts as may be necessaryin order that the net amounts received by the Noteholders after the withholding or deduction shall equal therespective amounts which would have been receivable in respect of the Notes in the absence of suchwithholding or deduction. The withholding tax rate on interest payments in respect of bonds issued byTurkish entities outside of Turkey varies depending on the original maturity of such bonds as specified underdecree numbered 2010/1182 dated 20 December 2010 (the “2010 Decree”). Pursuant to the 2010 Decree, (i)with respect to bonds with a maturity of less than 1 year, the withholding tax rate on interest is 10%, (ii) withrespect to bonds with a maturity of at least 1 year and less than 3 years, the withholding tax rate on interestis 7%, (iii) with respect to bonds with a maturity of at least 3 years and less than 5 years, the withholding taxrate on interest is 3%, and (iv) with respect to bonds with a maturity of 5 years and more, the withholdingtax rate on interest is 0%.

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FORWARD-LOOKING STATEMENTS

This Offering Memorandum contains statements that may be considered to be “forward-looking statements”as that term is defined in the U.S. Private Securities Litigation Act of 1995. Forward-looking statementsappear in a number of places throughout this Offering Memorandum, including, without limitation, under“Risk Factors”, “Use of Proceeds”, “Management’s Discussion and Analysis of Financial Condition andResults of Operations”, “Business” and elsewhere in this Offering Memorandum, and include, but are notlimited to, statements regarding:

• strategy and objectives;

• trends affecting the Bank’s results of operations and financial condition;

• asset portfolios;

• loan loss reserve;

• capital adequacy;

• legal proceedings; and

• the Bank’s potential exposure to market risk.

The forward-looking statements also may be identified by words such as “believes”, “expects”, “anticipates”,“projects”, “intends”, “should”, “seeks”, “estimates”, “probability”, “risk”, “target”, “goal”, “objective”,“future” or similar expressions or variations on such expressions.

Forward-looking statements involve risks, uncertainties and assumptions. Actual results may differmaterially from those expressed in these forward-looking statements.

The Bank has identified some of the risks inherent in forward-looking statements under “Risk Factors” inthis Offering Memorandum. Important factors that could cause actual results to differ materially from thosein forward-looking statements include, among others:

• changes in the Turkish economy, in particular changes to the demand for Turkish exports;

• changes in the banking and financial markets in Turkey;

• changes in the Bank’s ownership by the Undersecretariat of Treasury or other changes in policy bythe Turkish government;

• change to the Turkish Treasury’s commitment to contribute capital or other financial support;

• the Bank’s credit exposure to financial institutions in Turkey;

• the Bank’s exposure to Turkish sovereign debt;

• changes in applicable laws and regulations, including taxes, or accounting standards or practices;

• the monetary, interest rate and other policies of central banks in Turkey, the European Union, theUnited States and elsewhere;

• changes or volatility in interest rates, foreign exchange rates, asset prices, equity markets, commodityprices, inflation or deflation;

• the effects of competition in the markets in which the Bank operates, which may be influenced byregulation or deregulation;

• the Bank’s exposure to the credit risk of its borrowers and counterparties;

• the Bank’s ability to hedge certain risks economically;

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• the inability of the Bank to obtain adequate reinsurance coverage;

• the Bank’s ability to manage any mismatches between the Bank’s interest-earning assets and theBank’s interest-bearing liabilities;

• changes to the Bank’s tax status and/or tax exemptions;

• the Bank’s ability to manage operational risks and prevent security breaches;

• the Bank’s ability to maintain reliable and secure information technology systems;

• the Bank’s ability to attract and retain key management and qualified personnel;

• the Bank’s ability to grow the Bank’s loan portfolio;

• the Bank’s ability to control expenses;

• the timely development and acceptance of new products and services and the perceived overall valueof these products and services by the Bank’s customers;

• the Bank’s ability to manage liquidity risks and to access credit and capital markets;

• the Bank’s success in managing the risks involved in the foregoing, which depends, among otherthings, on the Bank’s ability to anticipate events that cannot be captured by the statistical models theBank uses; and

• force majeure and other events beyond the Bank’s control.

There may be other risks, including some risks of which the Bank is unaware, that could adversely affect theBank’s results or the accuracy of forward-looking statements in this Offering Memorandum. Therefore, youshould not consider the factors discussed here or under “Risk Factors” to be a complete set of all potentialrisks or uncertainties.

You should not place undue reliance on any forward-looking statements. The Bank does not have anyintention or obligation to update forward-looking statements to reflect new information, future events or risksthat may cause the forward-looking events the Bank discusses in this Offering Memorandum not to occur orto occur in a manner different from what the Bank expects.

ix

PRESENTATION OF FINANCIAL AND OTHER INFORMATION

Presentation of Financial Information

The Bank maintains its books of account and prepares its statutory financial statements (“StatutoryFinancial Statements”) in Turkish Lira in accordance with the Turkish Banking Law and the “Regulationon Accounting Applications for Banks and Safeguarding of Documents” published in the Official Gazette No.26333 dated 1 November 2006, which refers to Turkish Accounting Standards and Turkish FinancialReporting Standards issued by the Turkish Accounting Standards Board and additional explanations andnotes related to them and other decrees, notes and explanations related to accounting and financial reportingprinciples published by the Banking Regulation and Supervision Agency (“BRSA”) and other relevant rulespromulgated under the Turkish Commercial Code, the CMB and tax regulations (collectively “TurkishGAAP”). The Statutory Financial Statements are provided to the BRSA in accordance with applicableregulations.

The audited annual financial statements of the Bank as at and for the years ended 31 December 2011, 2010and 2009 (the “IFRS Financial Statements”) included elsewhere in this Offering Memorandum, have beenprepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by theInternational Accounting Standards Board. Unless otherwise indicated or the context otherwise requires, thefinancial information presented herein has been derived from the IFRS Financial Statements.

Certain financial and other information presented in various tables in this Offering Memorandum, includingcertain tables in “Selected Statistical and Other Information”, have been prepared on the basis of the Bank’sown internal accounts.

Average Balance Sheet and Interest Rate Data

This Offering Memorandum includes the average balances of interest bearing assets and interest bearingliabilities of the Bank for the years ended 31 December 2011, 2010 and 2009 based on the Bank’s StatutoryFinancial Statements and other financial information prepared in accordance with BRSA principles, whichare calculated on a monthly basis (the “Average Balances”).

The results of the analysis for the Bank would likely be different if alternative or more frequent averagingmethods were used and such differences could be material. Prospective investors are cautioned that theAverage Balances and related data presented in this Offering Memorandum are based on materially lessfrequent averaging methods than those used by other banks in the United States, Western Europe and otherjurisdictions in connection with similar offers of securities.

Reclassification of Cash Flow Information for the years ended 31 December 2010 and 2009

Comparative cash flow information and certain other information as at and for the years ended 31 December2010 and 2009 has been reclassified to be consistent with the presentation of such information in the IFRSFinancial Statements as at and for the year ended 31 December 2011. As a result, such information as at andfor the year ended 31 December 2010 does not correspond to the historical information presented in thefinancial statements as at and for the year ended 31 December 2010 included elsewhere in this OfferingMemorandum and such information as at and for the year ended 31 December 2009 does not correspond tothe historical information presented in the financial statements as at and for the years ended 31 December2010 and 2009 included elsewhere in this Offering Memorandum. These reclassifications did not affect thenet increase in cash and cash equivalents for 2009 or the net decrease in cash and cash equivalents for 2010.

Currency

Unless otherwise indicated, references to “TL” in this Offering Memorandum are references to Turkish Lira,the Turkish currency. References to TL in the IFRS Financial Statements included elsewhere in this OfferingMemorandum are references to the Turkish currency rounded to the nearest thousand. Unless otherwiseindicated, references to “USD”, “$”, “U.S. Dollars”, or “Dollars” in this Offering Memorandum are to

x

United States Dollars expressed in millions. Unless otherwise indicated, references to “EUR”, “Euro” and“€” are to the single currency of the participating member states of the European Union that was adoptedpursuant to the Treaty of Rome of 27 March 1957, as amended by the Single European Act 1986 and theTreaty on European Union of 7 February 1992, as amended. References to “FX” mean all currencies exceptTL. References to “SDRs” are to Special Drawing Rights, the international reserve assets created by theInternational Monetary Fund (the “IMF”). The U.S. dollar value of the SDR is posted daily on the IMF’swebsite and as at 17 April 2012 was 0.65.

Exchange Rate Information

For the convenience of the reader, this Offering Memorandum presents translations of certain Turkish Liraamounts into Dollars at the Turkish Lira exchange rates for purchases of U.S. Dollars announced by theCentral Bank (the “TL/USD exchange rate”). See “Exchange Rates.” No representation is made that theTurkish Lira or U.S. Dollar amounts in this Offering Memorandum could have been or could be convertedinto U.S. Dollars or Turkish Lira, as the case may be, at any particular rate or at all. For a discussion of theeffects on the Bank of fluctuating exchange rates, see “Management’s Discussion and Analysis of FinancialCondition and Results of Operations.”

Rounding

Certain figures included in this Offering Memorandum have been subject to rounding adjustments (e.g.,certain U.S. Dollar amounts have been rounded to the nearest million). Accordingly, figures shown for thesame category presented in different tables may vary slightly and figures shown as totals in certain tablesmay not be an arithmetic aggregation of the figures that precede them.

Unless otherwise indicated, the sources for statements and data concerning the Bank and its business arebased on best estimates and assumptions of the Bank’s management. Management believes that theseassumptions are reasonable and that its estimates have been prepared with due care. The data concerning theBank included herein, whether based on external sources or based on the internal research of the Bank’smanagement, constitute the best current estimates of the information described.

Certain comparative Turkish banking sector information included in this Offering Memorandum has beencalculated based on Turkish GAAP and therefore may not be directly comparable with the Issuer’s financialinformation based on the IFRS Financial Statements.

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Level: 6 – From: 6 – Wednesday, April 18, 2012 – 10:34 – eprint3 – 4409 Intro

NON-GAAP MEASURES OF FINANCIAL PERFORMANCE

To supplement the Bank’s financial statements presented in accordance with IFRS, the Bank uses certainratios and measures included in this Offering Memorandum that would also be considered a non-GAAPfinancial measure in the United States. A body of generally accepted accounting principles such as IFRS orTurkish GAAP is commonly referred to as “GAAP.” A non-GAAP financial measure is defined as one thatmeasures historical or future financial performance, financial position or cash flows but which excludes orincludes amounts that would not be so adjusted in the most comparable GAAP measures. These non-GAAPfinancial measures are not a substitute for GAAP measures, for which management has responsibility.

For the Bank, these non-GAAP measures include: net interest margin, net interest spread, liquid assets as apercentage of total assets, liquid assets as a percentage of short-term liabilities, return on average assets,return on average equity, average equity as a percentage of average total assets, net pricing gap and netliquidity gap. Refer to the “Summary Financial Information,” “Selected Financial Information,”“Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “SelectedStatistical and Other Information” sections of this document for the additional discussion of the specificadjustments applied in reconciliation to the directly comparable measures.

The non-GAAP measures included in this Offering Memorandum are not in accordance with or analternative to measures prepared in accordance with IFRS and may be different from non-GAAP measuresused by other companies. The Bank’s management believes that this information, along with comparableIFRS measures, is useful to investors because it provides a basis for measuring the organic operatingperformance in the years presented. These measures are used in internal management of the Bank, along withthe most directly comparable IFRS financial measures, in evaluating operating performance. Non-GAAPfinancial measures should not be considered in isolation from, or as a substitute for, financial informationpresented in compliance with IFRS. Non-GAAP financial measures as reported by the Bank may not becomparable to similarly titled amounts reported by other companies.

The Bank believes that these non-GAAP measures, when considered in conjunction with IFRS measures,enhance investors’ and management’s overall understanding of the Bank’s current financial performance.

xii

ENFORCEMENT OF JUDGMENTS AND SERVICE OF PROCESS

The Bank is a joint stock company organized under the laws of Turkey. All of the directors and officers ofthe Bank named herein reside inside Turkey and all or a significant portion of the assets of such persons maybe, and substantially all of the assets of the Bank are, located in Turkey. As a result, it may not be possiblefor investors to effect service of process upon such persons or entities outside Turkey or to enforce againstthem in the courts of jurisdictions other than Turkey any judgments obtained in such courts that arepredicated upon the laws of such other jurisdictions. In order to enforce such judgments in Turkey, investorsshould initiate enforcement lawsuits before the competent Turkish courts. In accordance with Articles 50-59of Turkey’s International Private and Procedure Law (Law No. 5718), the courts of Turkey will not enforceany judgment obtained in a court established in a country other than Turkey unless:

(a) there is in effect a treaty between such country and Turkey providing for reciprocal enforcement ofcourt judgments,

(b) there is de facto enforcement in such country of judgments rendered by Turkish courts; or

(c) there is a provision in the laws of such country that provides for the enforcement of judgments ofTurkish courts.

There is no treaty between Turkey and the United States or Turkey and the United Kingdom providing forreciprocal enforcement of judgments. There is no de facto reciprocity between Turkey and the United States.Turkish courts have rendered at least one judgment in the past confirming de facto reciprocity betweenTurkey and the United Kingdom. However, since de facto reciprocity is decided by the relevant court on acase-by-case basis, there is uncertainty as to the enforceability of court judgments obtained in the UnitedStates or the United Kingdom by Turkish courts in the future. Moreover, there is uncertainty as to the abilityof an investor to bring an original action in Turkey based on the U.S. federal or any other non-Turkishsecurities laws.

In addition, the courts of Turkey will not enforce any judgment obtained in a court established in a countryother than Turkey if:

(a) the defendant was not duly summoned or represented or the defendant’s fundamental proceduralrights were not observed;

(b) the judgment in question was rendered with respect to a matter within the exclusive jurisdiction of thecourts of Turkey;

(c) the judgment is incompatible with a judgment of a court in Turkey between the same parties andrelating to the same issues or, as the case may be, with an earlier foreign judgment on the same issueand enforceable in Turkey;

(d) the judgment is not of a civil nature;

(e) the judgment is clearly against public policy rules of Turkey;

(f) the judgment is not final and binding with no further recourse for appeal under the laws of the countrywhere the judgment has been rendered; or

(g) the judgment was rendered by a foreign court that has deemed itself competent even though it has noactual relationship with the parties or the subject matter at hand.

In connection with the issuance of Notes, the Bank will designate The Economic Counsellor of the Republicof Turkey at 43 Belgrave Square, London SW1X 8PA as its agent upon whom process may be served inconnection with any proceedings in England.

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AVAILABLE INFORMATION

The Issuer is not required to file periodic reports under Section 13 or 15 of the U.S. Securities Exchange Actof 1934, as amended (the “Exchange Act”). For so long as the Issuer is not a reporting company underSection 13 or 15(d) of the Exchange Act, or exempt from reporting pursuant to Rule 12g3-2(b) thereunder,the Issuer will, upon request, furnish to each holder or beneficial owner of Notes that are “restrictedsecurities” (within the meaning of Rule 144(a)(3) under the Securities Act) or to each prospective purchaserthereof designated by such holder or beneficial owner upon request of such holder, beneficial owner orprospective purchaser, in connection with a transfer or proposed transfer of any such Notes pursuant to Rule144A under the Securities Act or otherwise, the information required to be delivered pursuant to Rule144A(d)(4) under the Securities Act.

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CONTENTS

Page

GENERAL INFORMATION ...................................................................................................... iii

RESPONSIBILITY STATEMENT .............................................................................................. v

NOTICE TO NEW HAMPSHIRE RESIDENTS ........................................................................ vi

TURKISH TAX CONSIDERATIONS ........................................................................................ vii

FORWARD-LOOKING STATEMENTS...................................................................................... viii

PRESENTATION OF FINANCIAL AND OTHER INFORMATION ........................................ x

NON-GAAP MEASURES OF FINANCIAL PERFORMANCE ................................................ xii

ENFORCEMENT OF JUDGMENTS AND SERVICE OF PROCESS ...................................... xiii

AVAILABLE INFORMATION .................................................................................................... xiv

OVERVIEW OF THE BANK ...................................................................................................... 1

OVERVIEW OF THE CONDITIONS OF THE NOTES ............................................................ 4

SUMMARY FINANCIAL INFORMATION .............................................................................. 7

RISK FACTORS .......................................................................................................................... 10

USE OF PROCEEDS.................................................................................................................... 29

EXCHANGE RATES .................................................................................................................. 30

CAPITALIZATION ...................................................................................................................... 31

SELECTED FINANCIAL INFORMATION................................................................................ 32

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONAND RESULTS OF OPERATIONS ............................................................................................ 35

SELECTED STATISTICAL AND OTHER INFORMATION .................................................... 61

BUSINESS.................................................................................................................................... 75

RISK MANAGEMENT................................................................................................................ 95

MANAGEMENT .......................................................................................................................... 118

RELATED PARTY TRANSACTIONS ........................................................................................ 125

TURKISH BANKING SYSTEM ................................................................................................ 127

TURKISH REGULATORY ENVIRONMENT............................................................................ 129

CONDITIONS OF THE NOTES ................................................................................................ 144

THE GLOBAL CERTIFICATES.................................................................................................. 158

BOOK-ENTRY CLEARANCE SYSTEMS ................................................................................ 160

TAXATION .................................................................................................................................. 162

CERTAIN ERISA CONSIDERATIONS ...................................................................................... 167

PLAN OF DISTRIBUTION ........................................................................................................ 169

ADDITIONAL SELLING RESTRICTIONS .............................................................................. 171

TRANSFER RESTRICTIONS .................................................................................................... 172

LEGAL MATTERS ...................................................................................................................... 177

GENERAL INFORMATION ...................................................................................................... 178

ANNEX A: SUMMARY OF DIFFERENCES BETWEEN IFRS AND BRSAACCOUNTING PRINCIPLES .................................................................................................... 180

INDEX TO FINANCIAL STATEMENTS .................................................................................. F-1

xv

OVERVIEW OF THE BANK

The following overview should be read in conjunction with, and is qualified in its entirety by, the detailedinformation appearing elsewhere in this Offering Memorandum, including the IFRS Financial Statements.Prospective investors should see “Risk Factors” below for a discussion of certain factors that should beconsidered in connection with an investment in the Notes (or beneficial interests therein).

Overview

The Bank, which is organized as a joint stock company, is the official export credit agency of Turkey. As setforth in Cabinet Decree No. 87/11914 of 21 August 1987 (the “Decree”), the Bank was organized for thepurposes of “the improvement of exports, diversification of exported goods and services, causing exportationto enter into new markets, increasing share of exporters in international trade, extending them such supportin their ventures as shall be necessary, providing exporters and overseas contractors with support forincreasing the competitiveness and security in international markets and supporting and encouragingoverseas investments and production and sale of export-oriented capital goods.” In order to advance theseaims, the Bank provides loans, guarantees and insurance, principally to Turkish exporters. The Bank iswholly-owned by the Undersecretariat of Treasury and the Decree provides that the Treasury must retain amajority of the Bank’s shares. The Bank’s chartering law provides that the Undersecretariat of Treasury isrequired to cover losses incurred by the Bank in its credit, insurance and guarantee transactions arising frompolitical risk (such as transfer restrictions, foreign exchange restrictions or war), although the Bank bears allcredit risk in connection with such transactions. The Bank offers its programs out of its headquarters inAnkara and its branch offices in Istanbul and Izmir. The Bank currently plans to commence operations at anew headquarters in Istanbul in August 2012, following an amendment to its Articles of Association inNovember 2011 which provided for a relocation of the Bank’s headquarters to Istanbul within two years.During the migration period, the Bank’s headquarters will remain in Ankara.

The Bank estimates that in the year ended 31 December 2011, based on aggregate Turkish exports of USD134.5 billion (as reported by the Turkish Exporters Assembly), that it provided financial support forapproximately 9.2% of total Turkish exports, as compared to 7.8% of aggregate exports in 2010. Althoughthere was a slump in exports in 2009 due to the global financial crisis, in the past seven years, Turkish exportshave grown from an aggregate of USD 73.5 billion in 2005 to USD 134.5 billion in 2011.

The Bank provides four main export finance related products: short-term credits, medium and long-termcredits, guarantees and insurance. It’s most significant product is short-term loans, which as at 31 December2011 accounted for 81% of its total outstanding loans (and 84% of its total outstanding loans as at 31December 2010). The textile and ready-to-wear sector accounted for the largest proportion by volume oftotal short-term loans at 24%, followed by the iron and steel sector at 21% and the food, agriculture andlivestock sector at 13% of the total, for the year ended 31 December 2011. However, the Bank’s strategy isto shift from short-term lending to a mix of short term and medium- and long-term lending as well asfocusing on buyer credit programs in international markets. Additionally, in 2011, the Bank started offeringforeign currency options to assist Turkish exporters with managing exchange rate risks.

The Bank is an important instrument in the implementation of Turkey’s economic policy, which since 1980has focused on export-led economic growth, rather than focusing on maximizing profits. The state canexercise its influence over the Bank through its control of the Bank’s Supreme Advisory and Credit GuidanceCommittee and through the appointment of the Bank’s Board of Directors. See “Risk Factors—Risk FactorsRelating to the Bank—The Bank receives periodic contributions of capital and certain other transfers ofmonies from the Treasury to meet its funding needs.” This Committee approves the Bank’s annual programs,as well as the Bank’s general strategy, targeted annual volumes and key objectives for each year. For 2011,the Bank set its target to provide USD 10.9 billion in financial support to the export sector, consisting of USD5.1 billion in the form of cash loans and USD 5.8 billion in the form of insurance and guarantees and equalto 9.2% of total exports for 2011. As at 31 December 2011, the Bank had exceeded its target and hadprovided USD 12.4 billion in financial support to Turkish exporters through its credit, insurance andguarantee programs. The Bank’s 2012 Annual Program was approved in February 2012. For 2012, the Bankaims to provide USD 20.5 billion in financial support to the export sector, consisting of USD 12.0 billion in

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the form of cash loans and USD 8.5 billion in the form of insurance and guarantees, which is equal to 13.8%of the current target for total exports of USD 148.5 billion for 2012. As at 29 February 2012, the Bank hadprovided USD 2.8 billion in financial support to Turkish exporters through its credit, insurance and guaranteeprograms during 2012.

The long-term debt of the Bank has been rated by Moody’s and Standard & Poor’s since 1997. The Bank’sforeign and local currency long-term debt ratings assigned by Standard & Poor’s are BB and BBB-,respectively. Moody’s, on the other hand, assigned Ba1 foreign currency issuer and long-term seniorunsecured debt ratings to the Bank. Both Standard & Poor’s and Moody’s gave the Bank a “positive” outlookin February 2010 and October 2010, respectively. However, the Bank’s Ba1 foreign currency issuer and long-term senior unsecured debt ratings were placed under review on 16 March 2012 for a possible downgrade byMoody’s because of a change in methodology.

Strengths

The Bank believes it has the following competitive strengths:

State-ownership and support. The Bank is wholly-owned by the state of Turkey. The Undersecretariat ofTreasury currently owns 100% of the Bank’s shares and, pursuant to the law under which the Bank wasestablished, must retain at least 51% ownership of the Bank. Additionally, the state provides support to theBank in a variety of ways. The government has in the past regularly injected capital into the Bank, eitherdirectly to paid-in capital or to specific funds that are managed by the Bank and are incorporated into its totalequity. The zero cost of funding of this capital allows the Bank to provide exporters with Turkish Lira-denominated credit at below market rates. The state also provides indemnification for political risk andguarantees the ultimate recovery of losses in the case of concessional credits granted by the Bank to certaincountries deemed strategically important by the Turkish government (currently there are no concessionalcredits outstanding). This is expected to become more important as the Bank expands its buyer’s creditprogram into new markets for Turkish exports. In addition, the Bank is currently exempt from corporateincome tax, stamp tax and Central Bank reserve requirements. Such government support increases theBank’s competitiveness in the Turkish export finance market and helps to maintain its well-establishedposition as the leader in the Turkish market.

Leading provider of export finance in Turkey. The Bank is the leading provider of export finance in Turkeyand as the Turkish economy and exports grow, the Bank expects further opportunities to grow its loanportfolio. The Bank provided financial support for 9.2% of Turkish exports in 2011 through its exportfinance-related products. In 2011, Turkey’s exports increased by 18.5% as compared to 2010 and the totalvalue of Turkish exports reached USD 134.5 billion, while Turkey’s GDP increased 8.5% as compared to2010. Since the 1980s, successive Turkish governments have focused on export-led economic growth and asTurkey’s official export credit agency, the Bank has played a central role in that government policy. The Bankexpects it will continue to be a major instrument for the government’s policies as Turkey focuses onimproving its current account balance.

Diverse range of products. The Bank’s export finance-related programs include not only export credit butalso export credit insurance and buyer credit and guarantee programs. Through its export credit programs,the Bank offers both short-term and medium- to long-term credit to exporters. The Bank also offers specificcredit programs for small and medium enterprises, businesses located in priority development areas,shipbuilders and tourism companies, amongst others. The Bank is able to create tailored products to meetnew demand or implement new strategies. For example, the Bank believes that, in the long term, overseasconstruction and investment will play an important role in increasing Turkey’s foreign currency earnings soit has developed a special program to provide assistance for the construction of department stores overseaswhich are also intended to support exports of consumer goods.

Strong financial position. The Bank maintains a high capital adequacy ratio, driven by the capitalcontributions from the Turkish Treasury and retained earnings. As at 31 December 2011, the Bank’s capitaladequacy ratio was 95.9% (under Basel I). Additionally, the Bank seeks to mitigate credit risk by taking ononly Turkish commercial bank risk and no exporter risk through its indirect lending program for short-termcredit, which is one of the Bank’s largest programs and does not extend new loans unless collateralized (with

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a Turkish commercial bank guarantee or otherwise). The Bank also requires Turkish commercial bankguarantees under many of its direct lending programs. With respect to provisioning policies, the Bankpursues a conservative approach.

Strategy

The Bank’s overall strategic goal is to augment the export capacity of high quality Turkish products andservices and continue to support Turkish exporters as Turkey’s official export credit agency. It intends toachieve this goal by continuing to implement the following key strategies:

Substantially grow cash and non-cash lending; increase share of medium and long-term programs.Currently, the Bank is principally engaged in providing short-term export financing to Turkish exporters.Going forward, the Bank plans to gradually change the focus of its activities to include a greater proportionof medium- and long-term cash and non-cash loan programs and guarantees and substantially increase itsoverall volume of activity. In the future, the Bank plans to leave short-term export financing to commercialbanks and to focus more on medium-term loan facilities, as well as guarantees and insurance activities thatgenerate fees and commissions.

Support diversification of export markets and products. The Bank is focused on achieving product andcountry diversification of Turkish exports as well as increasing the share of Turkish exporters in internationaltrade. Other objectives include developing new export markets through buyer’s credit and similar programsand providing support and risk management options for Turkish exporters, investors and overseascontractors. The Bank seeks to diversify and expand its activities in order to encourage Turkish exports andeconomic growth as set forth in the Turkish government’s economic policy. The Bank’s overall volume offinancial support to Turkish exporters through its credit, insurance and guarantee programs has grown fromUSD 8.9 billion in 2010 to USD 12.4 billion in 2011, and the Bank intends to continue to grow rapidly bysupporting increasing levels of Turkish exports.

Alignment with Government development strategy. The Turkish government’s 2012 government programseeks to ensure sustainable growth, reduce the current account deficit, increase employment and achieve andmaintain a single-digit inflation rate. The Bank’s strategies take into account such goals and the Bank aimsto contribute to building a positive image of Turkish products in the international markets by providing creditprograms that meet exporters’ needs. The Bank also provides certain credit programs and benefits that aretargeted at assisting small and medium enterprises and government-designated priority development regions.In addition, the Bank places importance on its Country Credit/Guarantee Program (a buyer’s credit/guaranteescheme) with key trading partners in Asia and Africa.

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OVERVIEW OF THE CONDITIONS OF THE NOTES

The following is an overview of certain information relating to the offering of the Notes, including theprincipal provisions of the terms and conditions thereof. This overview is indicative only, does not purportto be complete and is qualified in its entirety by the more detailed information appearing elsewhere in thisOffering Memorandum. See, in particular, “Conditions of the Notes.”

Issue: USD 500,000,000 principal amount of 5.875% Notes due 2019.

Interest and Interest Payment Dates: The Notes bear interest from and including 20 April 2012 (the“Issue Date”) at the rate of 5.875% per annum, payable semi-annually in arrear on 24 April and 24 October in each year (eachan “Interest Payment Date”). The first payment (for the periodfrom and including 20 April 2012 to but excluding 24 October2012 and amounting to USD 30.03 per USD 1,000 principalamount of each Note) shall be made on 24 October 2012.

Maturity Date: 24 April 2019.

Use of Proceeds: The net proceeds will be used by the Issuer for export andproject financing purposes. See “Use of Proceeds.”

Status: The Notes are direct, unconditional and (subject to theprovisions of Condition 4) unsecured obligations of the Issuerand (subject as provided above) rank and will rank pari passu,without any preference among themselves, with all otheroutstanding unsecured and unsubordinated obligations of theIssuer, present and future, but, in the event of insolvency, only tothe extent permitted by applicable laws relating to creditors’rights. The Notes are issued pursuant to the Turkish CommercialCode (Law No. 6762), the Capital Markets Law (Law No. 2499)and Articles 6 and 25 of the Communiqué Serial: II, No. 22 ofthe Capital Markets Board on Registration and Sale of DebtInstruments.

Negative Pledge: Save for in certain specified circumstances, so long as any Noteremains outstanding, the Issuer will not create or permit tosubsist any Security Interest upon, or with respect to, any of itspresent or future business, undertaking, assets or revenues(including any uncalled capital) to secure any RelevantIndebtedness unless the Issuer, in the case of the creation of aSecurity Interest, before or at the same time and, in any othercase, promptly, takes any and all action necessary to ensure that:(a) all amounts payable by it under the Notes are secured by theSecurity Interest equally and rateably with the RelevantIndebtedness or, (b) such other Security Interest or otherarrangement is provided as is approved by an ExtraordinaryResolution (as defined in the Agency Agreement) of theNoteholders.

See “Conditions of the Notes—Condition 4.”

Certain Covenants: The Issuer will agree to certain covenants, including, withoutlimitation, covenants limiting transactions with affiliates. See“Conditions of the Notes—Condition 5.”

Redemption for Taxation Reasons: The Notes may be redeemed at the option of the Issuer in whole,but not in part, at any time (subject to certain conditions), at their

4

principal amount (together with interest accrued to the date fixedfor redemption) if, as a result of any change in, or amendmentto, the laws or regulations of a Relevant Jurisdiction (as definedin Condition 9), or any change in the application or officialinterpretation of the laws or regulations of a RelevantJurisdiction, which change or amendment becomes effectiveafter 20 April 2012, on the next Interest Payment Date the Issuerwould be required to pay additional amounts as provided orreferred to in Condition 9 and the Issuer would be required tomake any withholding or deduction for, or on account of, anyTaxes imposed or levied by or on behalf of the RelevantJurisdiction, beyond the prevailing applicable rates on the IssueDate and the requirement cannot be avoided by the Issuer takingreasonable measures available to it.

Redemption upon Change of Control: Following the occurrence of a Change of Control (as defined inCondition 8.3), each Noteholder will have a right, at suchNoteholder’s option, to require the Issuer to redeem all, but notsome only, of such Noteholder’s Notes on the Change of ControlPut Date (as defined in Condition 8.3) at 100% of their principalamount together with interest accrued to but excluding the dateof redemption. See “Conditions of the Notes—Condition 8.”

All payments in respect of the Notes by or on behalf of the Issuershall be made without withholding or deduction for, or onaccount of, any present or future taxes, duties, assessments orgovernmental charges of whatever nature (“Taxes”) imposed orlevied by or on behalf of a Relevant Jurisdiction (as defined inthe Conditions of the Notes), unless the withholding ordeduction of the Taxes is required by law. In that event, theIssuer will pay such additional amounts as may be necessary inorder that the net amounts received by the Noteholders after thewithholding or deduction shall equal the respective amountswhich would have been receivable in respect of the Notes in theabsence of the withholding or deduction. See “Conditions of theNotes—Condition 9.”

Events of Default: The Notes will be subject to certain Events of Default (asdefined in Condition 11) including (among others) non-payment, breach of obligations, cross-acceleration and certainbankruptcy and insolvency events. See “Conditions of theNotes—Condition 11.”

Form, Transfer and Denominations: The Regulation S Notes will be represented by beneficialinterests in the Unrestricted Global Certificate in registeredform, without interest coupons attached, which will be deliveredto a common depositary for, and registered in the name of acommon nominee of, Euroclear and Clearstream, Luxembourg.The Rule 144A Notes will be represented by beneficial interestsin the Restricted Global Certificate, in registered form, withoutinterest coupons attached, which will be deposited with theCustodian, and registered in the name of Cede & Co., asnominee for, DTC. Except in limited circumstances, certificatesfor Notes will not be issued in exchange for beneficial interestsin the Global Certificates. See “Conditions of the Notes” and“The Global Certificates.”

Taxation; Payment of AdditionalAmounts:

5

Interests in the Rule 144A Notes will be subject to certainrestrictions on transfer. See “Transfer Restrictions.” Interests inthe Global Certificates will be shown on, and transfers thereofwill be effected only through, records maintained by Euroclearand Clearstream, Luxembourg, in the case of the Regulation SNotes, and by DTC and its direct and indirect participants, in thecase of Rule 144A Notes.

Notes will be issued in denominations of USD 200,000 andintegral multiples of USD 1,000 thereafter. See “Conditions ofthe Notes.”

Governing Law: The Notes and the Agency Agreement will be governed by, andconstrued in accordance with, English law.

Listing: Application has been made to the UK Listing Authority for theNotes to be admitted to listing on the Official List and to theLondon Stock Exchange for such Notes to be admitted to tradingon the London Stock Exchange’s Regulated Market.

Selling Restrictions: The Notes have not been nor will be registered under theSecurities Act or any state securities laws and may not be offeredor sold within the United States or to, or for the account orbenefit of, any U.S. person (as defined in Regulation S under theSecurities Act), except to qualified institutional buyers inreliance on the exemption from the registration requirements ofthe Securities Act provided by Rule 144A or otherwise pursuantto an exemption from, or in a transaction not subject to, theregistration requirements of the Securities Act. The offer andsale of Notes is also subject to restrictions in Turkey and theUnited Kingdom. See “Additional Selling Restrictions.”

Certain ERISA Considerations: Subject to certain conditions, the Notes (or any beneficialinterest therein) may be purchased by an “employee benefitplan” as defined in and subject to Title I of the U.S. EmployeeRetirement Income Security Act of 1974, as amended(“ERISA”), a “plan” as defined in and subject to Section 4975of the U.S. Internal Revenue Code of 1986, as amended (the“Code”), or any entity whose underlying assets are deemed forpurposes of ERISA or the Code to include “plan assets” byreason of such employee benefit plan’s or plan’s investment inthe entity. See “Certain ERISA Considerations.”

Risk Factors: For a discussion of certain risk factors relating to Turkey, theIssuer and the Notes that prospective investors should carefullyconsider prior to making an investment in the Notes, see “RiskFactors.”

Regulation S Security Codes: ISIN: XS0774764152Common Code: 077476415

Rule 144A Security Codes: ISIN: US30214YAD67CUSIP: 30214YAD6

Representation of Noteholders: There will be no trustee.

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SUMMARY FINANCIAL INFORMATION

The following tables set forth, for the periods and as at the dates indicated, summary financial data of theBank derived from the IFRS Financial Statements (presented under IFRS) included elsewhere in thisOffering Memorandum.

Prospective investors should read the following information in conjunction with “Presentation of Financialand Other Information”, “Capitalization”, “Management’s Discussion and Analysis of Financial Conditionand Results of Operations”, as well as the IFRS Financial Statements.

Income Statement Data

Year ended 31 December–––––––––––––––––––––––––––––––

2011 2010 2009––––––––– ––––––––– –––––––––

(in thousands of TL)

Interest income .................................................................................................................... 313,359 315,753 437,972Interest expense .................................................................................................................. (48,869) (27,045) (50,725)

––––––––– ––––––––– –––––––––Net interest income ............................................................................................................ 264,490 288,708 387,247

––––––––– ––––––––– –––––––––Fee and commission income .............................................................................................. 5,866 804 2,290Fee and commission expense .............................................................................................. (6,081) (9,940) (8,585)

––––––––– ––––––––– –––––––––Net fee and commission expense ...................................................................................... (215) (9,136) (6,295)

––––––––– ––––––––– –––––––––Impairment losses on loans, net .......................................................................................... (18,413) (19,389) (52,339)Foreign exchange gains/(losses), net .................................................................................. 162,498 23,875 (23,377)Gains/(losses) on financial instruments classified as held for trading, net ........................ (124,230) (4,883) 63,911Other operating income ...................................................................................................... 53,403 42,466 35,007

––––––––– ––––––––– –––––––––Operating profit before operating expenses.................................................................... 337,533 321,641 404,154Operating expenses.............................................................................................................. (107,255) (65,171) (61,713)

––––––––– ––––––––– –––––––––Net profit for the period .................................................................................................... 230,278 256,470 342,441

––––––––– ––––––––– –––––––––Other comprehensive income:Change in fair value gains/(losses) on available-for-sale financial assets .......................... (4,907) 1,458 8,618Amortization of the fair value gains/(losses) of held-to-maturity investments previously classified as available-for-sale financial assets.................................................................... (45) (101) (114)

––––––––– ––––––––– –––––––––Total comprehensive income for the period .................................................................... 225,326 257,827 350,945

––––––––– ––––––––– –––––––––––––––––– ––––––––– –––––––––

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Balance Sheet Data

As at 31 December–––––––––––––––––––––––––––––––

2011 2010 2009––––––––– ––––––––– –––––––––

(in thousands of TL)ASSETSCash and due from banks .................................................................................................... 667,369 886,771 2,059,197Trading securities ................................................................................................................ 342,935 308,488 150,149Derivative financial instruments .......................................................................................... 15,895 1,885 16,548Loans and advances to customers ...................................................................................... 7,997,214 4,106,275 3,854,426Investment securities

Available-for-sale .................................................................................................. 11,295 15,202 13,744Held-to-maturity .................................................................................................... 511,436 891,703 309,068

Property and equipment ...................................................................................................... 9,693 8,104 8,444Intangible assets .................................................................................................................. 569 390 654Other assets.......................................................................................................................... 26,738 10,748 14,879

––––––––– ––––––––– –––––––––Total assets.......................................................................................................................... 9,583,144 6,229,566 6,427,109

––––––––– ––––––––– –––––––––––––––––– ––––––––– –––––––––LIABILITIESFunds borrowed .................................................................................................................. 4,669,760 1,798,712 2,025,884Debt securities in issue ........................................................................................................ 960,419 – –Interbank money market deposits........................................................................................ 157,988 – –Derivative financial instruments .......................................................................................... 23,317 25,164 5,289Other liabilities .................................................................................................................... 112,040 764,692 728,770Reserve for employment termination benefits .................................................................... 11,560 10,856 9,963

––––––––– ––––––––– –––––––––Total liabilities .................................................................................................................... 5,935,084 2,599,424 2,769,906

––––––––– ––––––––– –––––––––––––––––– ––––––––– –––––––––EQUITYShare capital ........................................................................................................................ 2,000,000 2,000,000 2,000,000Adjustment to share capital ................................................................................................ 812,518 812,518 812,518Total paid in share capital.................................................................................................... 2,812,518 2,812,518 2,812,518Other reserves ...................................................................................................................... 3,630 8,582 7,225Retained earnings ................................................................................................................ 831,912 809,042 837,460

––––––––– ––––––––– –––––––––Total equity ........................................................................................................................ 3,648,060 3,630,142 3,657,203

––––––––– ––––––––– –––––––––Total liabilities and equity ................................................................................................ 9,583,144 6,229,566 6,427,109

––––––––– ––––––––– –––––––––––––––––– ––––––––– –––––––––

Cash Flow Statement Data


2011 2010 2009––––––––– ––––––––– –––––––––


Net cash from/(used in) operating activities ...................................................................... (4,364,041) (101,236)(*) 239,177(*)

Net cash from/(used in) investing activities ........................................................................ 391,110 (578,375)(*) (70,426)(*)

Net cash from/(used in) financing activities........................................................................ 3,782,047 (504,387) 1,288,621Effects of exchange-rate changes on cash and cash equivalents ........................................ (2,674) (4,676) (12,184)Cash and cash equivalents at the beginning of the period .................................................. 860,471 2,049,145 603,957Cash and cash equivalents at the end of the period .......................................................... 666,913 860,471 2,049,145

(*) The figures for the year ended 31 December 2010 and 2009 have been reclassified to conform to changes in presentation in the yearended 31 December 2011. The figures presented in the table for the year ended 31 December 2010 and 2009 are therefore unaudited.

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Key Ratios

As at and for the year ended31 December

–––––––––––––––––––––––––––––––2011 2010 2009

––––––––– ––––––––– –––––––––(in percentages)

Average liquid assets/Average total assets(1) ........................................................................ 11.96% 29.35% 20.05%Average liquid assets/Average short-term liabilities(1) ........................................................ 38.43% 137.21% 91.64%Return on average assets(2) .................................................................................................. 3.19% 4.13% 5.75%Return on average equity(3) .................................................................................................. 6.31% 7.02% 10.38%Equity to assets ratio(4) ........................................................................................................ 50.68% 58.84% 55.39%

Source: Statutory Financial Statements

(*) In this table, average liquid assets, average total assets, average short-term liabilities and average equity were each calculated on amonthly basis. See “Presentation of Financial and Other Information” and “Selected Statistical and Other Information—AverageBalance Sheet and Interest Rate Data.”

(1) Liquid assets consists of cash and due from banks, money market placements, financial assets held for trading and financial assetsavailable for sale.

(2) Return on average assets is calculated as net income for the period divided by average total assets for the period.

(3) Return on average equity is calculated as net income for the period divided by average equity for the period.

(4) Equity to assets ratio represents average equity for the period divided by average total assets for the period.

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RISK FACTORS

An investment in the Notes involves certain risks. Prior to making an investment decision, prospectivepurchasers of the Notes should carefully read the entire Offering Memorandum. In addition to the otherinformation in this Offering Memorandum, prospective investors should carefully consider the followingrisks relating to the Issuer and the Notes before making an investment in the Notes. If any of the followingrisks actually occurs, the Bank’s business, financial condition, results of operations and prospects may bematerially and adversely affected and the market value of the Notes may be adversely affected. In addition,factors that are material for the purpose of assessing the market risks associated with the Notes are alsodescribed below. The Bank believes that the factors described below represent the principal risks inherent ininvesting in the Notes, but the Bank does not represent that the statements below regarding the risks ofholding any Notes are exhaustive.

Risk factors relating to the Bank

The Bank is entirely state-owned and is subject to government control.

The Bank is entirely state-owned and is subject to government control, and the Turkish government’sinterests may conflict with the interests of Noteholders.

The Bank is 100% owned by Turkey through the Turkish Undersecretariat of Treasury. The interests of theTurkish government and the Undersecretariat of Treasury may differ from those of Noteholders and there canbe no assurance that the Undersecretariat of Treasury’s policies and decisions regarding the Bank will notnegatively affect the Noteholders. In particular, the Bank is an instrument of Turkish government policy asTurkey’s official export credit agency, rather than being primarily a profit-oriented institution. See“Business—Ownership and Capital Structure.” The Bank has been mandated to support foreign trade andTurkish investors operating overseas and certain of the other principal strategies of the Bank are determinedby Turkey’s priorities, such as supporting companies in priority development regions and small and mediumenterprises, which benefit from the Bank’s programs and are given priority in all credit applications, andencouraging tourism in Turkey through the Tourism Credit Program. Moreover, although the Bank has notexperienced pressure from the Undersecretariat of Treasury to date to conduct transactions upon morefavorable terms with Turkish state-owned or state-controlled legal entities or to deviate from its credit andlending policies and procedures, there can be no assurance that the Bank will not be directed or come underpressure to engage in activities with a lower profit margin than it would otherwise pursue or to providefinancing to certain companies or entities on favorable or non-market terms. Any such strategies or actionsmay not necessarily be the same as those pursued by an independent profit-oriented institution. Furthermore,the Bank has in the past been supported by capital contributions from the Undersecretariat of Treasury. Suchcontributions are subject to the budgeting process and delays, and may not be assured. See “—The Bankreceives periodic contributions of capital and certain other transfers of monies from the Treasury to meet itsfunding needs.”

The Bank has substantial credit exposure to financial institutions in Turkey.

The Bank’s loans and advances to customers, net of loan loss allowances (“net loans and advances tocustomers”) were TL 7,997 million, or 83.5% of its total assets, as at 31 December 2011. Substantially allof these loans and advances were made to exporters and financial intermediaries located in Turkey and, as at31 December 2011, 44% of the Bank’s loans and advances to customers were extended to Turkishcommercial banks, primarily through the Bank’s indirect lending under export credit programs. The Bank’sindirect lending programs operate through 44 of Turkey’s 48 banks, which in turn on-lend to Turkishexporters, who are required to comply with the lending criteria established by the Bank. Moreover, a majorityof this exposure is concentrated with the largest public and private commercial banks in Turkey. Thecommercial banks to which the Bank has lent money typically bear the default risk of the underlyingexporters. See “Business—Banking Activities—Short-Term Export Credits—Indirect Lending” for adescription of the Bank’s indirect lending programs. As at 31 December 2011, the ten largest borrowers ofthe Bank (measured by the amount of credit exposure under cash loans), all of which were Turkish publicand private banks, represented 35% of the Bank’s loan portfolio. The profitability of many Turkish banks has

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been negatively affected recently, particularly in the short-term (especially during the first half of 2011) andpossibly in the long-term, as a result of a number of factors that are generally impacting the Turkish bankingsector. Such factors include the contraction of interest margins, higher reserve requirements, increasing otheroperating expenses and increased competition among institutions.

The Bank also lends directly to Turkish exporters through its short-term export credit direct lendingprograms (see “Business—Banking Activities—Short-Term Export Credits—Direct Lending”) and through itsmedium- and long-term loans programs (see “Business—Banking Activities—Medium- and Long-TermExport Credits”). Such short-term credit provided directly by the Bank is 100% secured principally byTurkish commercial bank guarantees, which may further expose the Bank to Turkish bank credit risk.

As a result, the Bank’s business significantly depends upon the ability of Turkish commercial banks andother financial institutions as well as exporters to which the Bank lends to make payments and meet theirother obligations, which in turn are materially impacted by the strength of the Turkish economy and financialand banking sector, as well as political stability in Turkey. See “—Risk factors relating to Turkey” below.Any negative development within the Turkish banking sector, economy or political system could impair theBank’s strategies and have a material adverse effect on its business, financial condition, results of operationsand prospects.

The Bank’s business depends on demand for Turkish exports, which are concentrated by region andsector.

As Turkey’s export credit agency, the Bank supports Turkish exporters, contractors and investors throughvarious credit, guarantee and insurance programs, substantially all of which are short-term (with 81% of theBank’s total loans and advances to customers as at 31 December 2011 having an initial term of one year orless). Accordingly, the Bank’s business and growth prospects significantly depend on demand for Turkishexports. Adverse changes in the general level of Turkish exports would affect demand for the Bank’sproducts and services, and reduce the size of the Bank’s loan portfolio.

The business sector and geographic distribution of the loans extended by the Bank are closely related to thecomposition of Turkish exports, and the Bank’s loan portfolio relates to exports concentrated in certaincountries and sectors. In 2011, approximately 54% of the Bank’s short-term credits related to exports to theEuropean Union, 19% to the Middle East and North Africa and 11% to North America and Japan combined.Also in 2011, based on volume of exports, approximately 24% of the Bank’s short-term credits related toexports of textiles, 21% to iron and steel, 13% to food, agriculture and livestock products, 12% to machineryand electrical appliances and 9% to mining and metal products. The recovery in many of Turkey’s principalmarkets for goods and services remains extremely fragile; see “—The Bank’s business is subject tomacroeconomic and financial market conditions.” Any deterioration of the political and economic conditionsin these countries, particularly in the European Union, or a downturn in any of these sectors, individually orin the aggregate, may adversely affect the general demand for Turkish exports and the financial condition ofthe companies operating in such sectors and may result in, among other things, a decrease in loans toexporters, defaults on their obligations owed to the Bank or a need for the Bank to increase provisions inrespect of such loans, any of which could have an adverse effect on the Bank’s business, financial conditionand results of operations.

The Bank’s business is subject to macroeconomic and financial market conditions.

Economic conditions in Turkey and globally have a significant impact on the level of Turkish exports andthe Bank’s performance. Disruptions in global capital and credit markets, coupled with the re-pricing ofcredit risk, have created difficult conditions in financial markets during the recent global financial crisis.These conditions have resulted in high levels of volatility across many markets (including capital markets),volatile commodity prices, decreased or no liquidity, widening of credit spreads, lack of price transparencyin certain markets and the failure of a number of financial institutions in the United States and Europe. Whilethe effects of the global financial crisis were more moderate in Turkey compared to the effects in the UnitedStates and some other European countries, contraction in world trade volumes also had an adverse impacton Turkey’s foreign trade during this period. In 2009 the Turkish economy suffered a 4.8% GDP contraction

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and Turkey’s exports declined by 23% (source: Central Bank and Turkish Statistical Institute). In 2010,Turkish GDP grew by 8.9% and exports showed a recovery by increasing 11.5% though the amount ofexports was still below pre-crisis levels. As compared to 2010, exports increased 18.5% in 2011 and Turkey’sGDP increased by 8.5%. A reduction in the level of Turkish exports or difficult macroeconomic or financialmarket conditions could adversely affect the Bank’s business, financial condition and results of operations.

In response to the global financial crisis, the government of the United States, a number of Europeangovernments and international monetary organizations have taken steps intended to help stabilize thefinancial system and increase the flow of credit in the global economy. There can be no assurance as to theactual impact that these measures and related actions will have on the financial markets and consumer andcorporate confidence generally, the demand for Turkish exports and on the Bank specifically, including thelevels of volatility and limited credit availability in wholesale markets that have recently characterized thefinancial markets. The failure of these measures and related actions to help stabilize the financial marketsand a continuation or worsening of current financial market conditions could lead to further decreases ininvestor and consumer confidence, further market volatility and decline, further economic disruption and, asa result, could have an adverse effect on the Bank’s business, financial condition and results of operations.Although Turkey has experienced growth recently, the Central Bank has sought to tighten monetary policysince the latter half of 2010 using various policy tools, including increasing reserve requirements, wideningthe interest corridor and increasing reserve requirement ratios. Continued tightening of monetary policycould adversely affect the Bank’s business, financial condition and results of operations.

Since December 2010, political instability has increased markedly in a number of countries in the MiddleEast and North Africa, such as Syria, Libya, Egypt and Bahrain. In particular, as a result of politicaldevelopments in Syria, an increased number of refugees are fleeing to Turkey. Unrest in those countries mayalso have implications for the wider global economy and may negatively affect market sentiment towardsother countries in the region, including Turkey, and towards securities originating in Turkey. There can be noassurance that the disturbances will not have political repercussions within Turkey. The situation maytherefore have a negative impact on the Turkish economy and the level of Turkish exports, which could inturn adversely affect the Bank’s business, financial condition and results of operations.

Additionally, the recent turmoil in the European sovereign debt market and the spreading of the eurozonecrisis beyond the euro zone periphery to larger economies, such as Italy, has led to significant contraction ordecreases in growth in the countries comprising the euro zone. Many EU countries are implementingausterity measures that may adversely impact growth in these countries. Continued weakness in or materialdeterioration of the EU economy, given the strong economic and trade ties between Turkey and the EU, couldhave negative effects on Turkey’s economy and the Bank’s business, financial condition and results ofoperations.

The Bank and its customers operating in Turkey continue to remain vulnerable to other external financial andeconomic factors such as the impact of the downgrade of U.S. sovereign debt by Standard & Poor’s RatingsServices in August 2011, the widening current account deficit in Turkey and the stability of numerousEuropean banks. These factors could have a material adverse impact on financial markets and economicconditions throughout the world and, in turn, the market’s anticipation of these impacts could have anadverse effect on the Bank’s business, financial condition and liquidity. In particular, these factors coulddisrupt payment systems, money markets, long-term and short-term fixed income markets, foreign exchangemarkets, commodities markets and equity markets and adversely affect the cost and availability of funding.The Bank’s performance will continue to be influenced by conditions in the global economy. The outlookfor the global economy over the near to medium term remains challenging, which also impacts prospects forstabilization and improvement of economic and financial conditions in Turkey.

The Bank receives periodic contributions of capital and certain other transfers of monies from theTreasury to meet its funding needs.

The Bank has since its inception received and may in the future continue to receive periodic contributions ofcapital and certain other transfers of monies from the Treasury in order to support its activities, maintain itscapital adequacy and meet its funding needs although currently the Bank does not expect to require a capital

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injection from the Treasury. See “Capitalization”, “Management’s Discussion and Analysis of FinancialCondition and Results of Operations—Capital Adequacy” and “Management’s Discussion and Analysis ofFinancial Condition and Results of Operations—Shareholders’ Equity.” As the sole shareholder of the Bank,the Treasury has made capital contributions to the Bank, and direct funding from the Treasury through capitalincreases and transfers from extra-budgetary funds have been the main sources of funding for the Bank(together with borrowings from commercial banks and international financial markets). Although the Bankdid not receive any capital contributions from the Treasury in 2011 and 2010, it has received a total of USD459.5 million (TL 684.7 million) in capital contributions since 2006. Any capital contribution from theTreasury must be included within the proposed budget for the following year and the amount is only paidout to the Bank after the budget is approved. Budget proposals are prepared and submitted by the variousgovernment institutions in July of each year (for some institutions, proposals are submitted by September).Then, the proposals are evaluated and finalized by the Ministry of Development and Budget and FinancialControl General Directorate and are submitted to the Council of Ministers. Final budget proposals aresubmitted to the Turkish Parliament by the Council of Ministers in mid-October and ratified by the GeneralAssembly of the Turkish Parliament in late December. Therefore, there can be significant delays before theBank receives planned capital contributions and such contributions are subject to any delays or other issuesin the Turkish budgeting process. For example, the nominal capital of the Bank was increased to TL 2 billionin September 2009 and the paid-in capital was only fully paid as at December 2009 due to internal Treasuryprocedures. Delays in receiving capital contributions could result in significant difficulties for the Bank inmeeting its funding needs. Moreover, there can be no assurance that the Republic will meet its fundingcommitments to the Bank.

In addition, the Treasury provides indemnification for certain political risks in relation to the Bank’sinsurance and loan programs, particularly its Country Credit and Guarantee Program which provides creditto overseas buyers, and in the case of concessional credit given to countries that the government has deemedstrategically important to Turkey, the Treasury covers the total income loss. See “Business—BankingActivities—Insurance” and “Business—Banking Activities—Medium- and Long-term Export Credits—Country Credit and Guarantee Program.” Indemnification for such political risks or loss is subject to delaysbecause payment of any such amounts is subject to the Turkish state budgeting process. Accordingly,payment of such amounts may be subject to substantial delays and, although payment of such claimedamounts has not been disputed in the past, there is no assurance this will be the case in the future, particularlyas the Bank seeks to expand its medium-term lending and country credit program. Accordingly, the Bankalso seeks to further mitigate such risks through the purchase of reinsurance from commercial reinsurers,although there can be no assurance that all political risks will be fully covered. The Turkish state does notprovide indemnification to the Bank for commercial risks and such risks are fully borne by the Bank (see “—The Bank is subject to credit risk from its reinsurers and may have difficulty obtaining reinsurance oncommercially acceptable terms”).

The delay or failure of the Treasury to meet its funding commitments or political risk indemnification andother obligations when they arise could have an adverse impact on the Bank’s short-term liquidity as well asits business, financial condition, results of operations and prospects.

The Bank may face increased risks as it focuses more on medium- and long-term lending and itsCountry Credit and Guarantee Program.

The Bank intends to shift its lending from primarily short-term lending to increased amounts of medium- andlong-term lending. Additionally, the Bank seeks to grow its Country Credit and Guarantee Program whichprovides credit to buyers of Turkish exports located outside of Turkey. The Bank’s successful execution ofthis strategy, which will involve increased risk, depends upon a number of factors including:

• its ability to expand or enhance existing risk management, information processing, technology, andother operational infrastructures effectively and efficiently;

• its ability to identify and manage additional overseas risk exposure relating to new or heightenedgeographic, political and economic factors resulting from the expansion of its Country Credit andGuarantee Program;

13

• its ability to manage the liquidity and capital requirements associated with growth in its medium- andlong-term loan portfolio and the increase in off balance sheet liabilities stemming from growth ininsurance and guarantee activities; and

• its ability to attract customers to its medium- and long-term credit programs.

Although the Bank currently has in place initiatives intended to address these factors, failure to execute theseinitiatives successfully could adversely affect the Bank’s business, financial condition and results ofoperations.

The Bank is subject to credit risk from its reinsurers and may have difficulty obtaining reinsurance oncommercially acceptable terms.

Under its export credit insurance programs, the Bank provides insurance to customers for up to 90% of thevalue of export receivables for losses due to commercial and political risk. The Bank re-insures 70% of thecommercial risk and, in the case of exports to countries that are not OECD members, 70% of the politicalrisk (within specific country limits agreed to with reinsurance counterparties). This reinsurance arrangementis entered into to enable the Bank to manage its risks on individual policies. As at 31 December 2011, thetotal aggregate amount of value underlying the insurance policies transferred by the Bank to reinsurancecompanies was USD 632.47 million. The reinsurance arrangement does not discharge the Bank from primaryliability to the insured, and the Bank is required to discharge its liability to the insured even if the reinsureris unable to meet its obligations under the reinsurance arrangements. Reinsurance arrangements alsodecrease premiums retained by the Bank since it pays the reinsuring company a portion of total premiumsbased upon the amount of liability reinsured. The Bank’s inability to procure reinsurance or failure byreinsurance counterparties to fulfill their obligations to make payments under reinsurance arrangementscould adversely affect the Bank’s business, financial condition and results of operations.

The Bank faces competition from Turkish commercial banks and other financial services companies.

The Bank competes for customers with other financial services companies, particularly local commercialbanks, in the short-term lending market, with foreign insurance companies offering export credit insuranceand with other export-import agencies in the overseas buyer’s credit market. The Turkish banking sector ishighly competitive and dominated by a small number of banks. As at 31 December 2011, there were a totalof 48 banks (excluding the Central Bank) licensed to operate in Turkey and the five largest banks (one ofwhich is a state bank) held 59% of the total bank assets in Turkey, according to the BRSA. Foreign bankshave shown an increased interest in the banking sector in Turkey with some acquiring interests in Turkishbanks, while foreign insurance companies and export credit agencies have started offering insuranceproducts, including export credit insurance in Turkey. There can be no assurance that the Bank will be ableto counterbalance domestic and foreign competitive pressures.

In addition, Turkish banks traditionally tend to hold a significant proportion of their assets in Turkishgovernment securities. Since 2008, interest rates in Turkey have declined substantially, which has madeholding government bonds a less profitable strategy. As a result, banks are beginning to shift assets towardshigher yielding assets, such as loans to customers. Increased competition for customers in thesecircumstances, however, may reduce lending margins. As a result of increased competition in conjunctionwith the lower interest rate environment, the margins that the Bank can achieve on its products may decreaseand it may lose customers to competitors offering better lending rates. There can be no assurance that furthercompetitive pressures will not result in continued margin compression, downward pressure on revenues fromaffected items and upward pressure on marketing and other promotional costs, which could adversely affectthe Bank’s business, financial condition and results of operations.

The loss of certain support that the Bank currently receives from the Turkish government, such as taxexemptions, may affect the Bank’s profitability.

The Turkish government currently provides support to the Bank in a variety of ways. In addition to receivingcapital contributions, the Bank is currently exempt from corporate income tax as a state-owned enterprise

14

pursuant to Article 4 of Law No. 3332, published in the Official Gazette dated 31 March 1987 and numbered19417. The Bank is also exempt from certain BRSA reserve requirements. However, there can be noassurance that such measures will continue in the long-term or otherwise. For example, as part of Turkey’sEuropean Union accession process, the Bank is likely to lose its tax-exempt status with respect to its exportcredit insurance programs. Such a loss and any other loss of government support for the Bank as a result ofany future changes to policy, laws and regulations could adversely affect the Bank’s business, financialcondition and results of operation.

Any future unavailability of capital markets and loan financing could have an adverse effect on theBank’s business, financial condition and results of operations.

In addition to the capital contributions and other monies received from the Treasury, the Bank has obtainedfinancing from both syndicated and bilateral loans (including from the World Bank and the EuropeanInvestment Bank), the Central Bank and from the issuance of notes and other debt securities, including inthe international capital markets, most recently in November 2011 with the issuance of a USD 500 millionbond (the “November 2011 Bond”). The Bank expects to depend on such financing to a greater degree inthe future as it seeks to expand its medium- and long-term lending. As at 31 December 2011, totalborrowings (including the November 2011 Bond) constituted 94.9% of the Bank’s total liabilities. There canbe no assurance that capital markets or loan financing will continue to be available to the Bank or that suchborrowings will be available on commercially reasonable terms. As discussed under “—The Bank’s businessis subject to macroeconomic and financial market conditions”, systemic shocks to the global financialsystem such as the global financial crisis substantially eroded liquidity and increased spreads of capitalmarkets funding and the current crisis related to the threat of sovereign defaults in several EU member statesand concerns regarding a “double-dip” recession have also increased spreads and increased volatility inglobal markets. Particularly in light of the volatility in the market for emerging market debt, the Bank mayhave difficulty extending and/or refinancing its existing indebtedness. If at some point in the future, furtherbond issuances are not possible on commercially acceptable terms or at all and syndicated and bilateral loanfinancing or borrowings from the Central Bank become unavailable, this could have an adverse effect on theBank’s business, financial condition, results of operations and prospects.

The Bank may be adversely affected by liquidity risk.

Liquidity risk comprises uncertainties in relation to the Bank’s ability to access funding necessary to coverobligations to borrowers, satisfy maturing liabilities and satisfy capital requirements. It includes both the riskof unexpected increases in the cost of financing and the risk of not being able to structure the maturity datesof the Bank’s liabilities reasonably in line with assets, as well as the risk of not being able to meet paymentobligations on time at a reasonable price due to liquidity pressures. As at 31 December 2011 and 31December 2010, the Bank maintained a positive liquidity gap for maturities (by group) that are up to threemonths and three months to one year, and as at 31 December 2010, also for maturities that are one year tofive years, while the total net liquidity gap as at 31 December 2011 and 2010 (which includes those over fiveyears and those with no maturity) was also positive. See “Risk Management—Liquidity Risk.” The Bank’sprincipal sources of funding are capital contributions and other transfers from the Treasury, loans fromdomestic and international banks, borrowings from the Central Bank, and monies received from the issuanceof notes and other debt securities (including in the international capital markets). Unlike most commercialbanks, the Bank does not accept any retail or corporate deposits.

Due to the Bank’s policy orientation and mandate to facilitate and encourage loans for Turkish exporters, theBank historically has had a high proportion of assets held in loans (83.5% of the Bank’s assets were loansand advances as at 31 December 2011) and the Bank’s principal liquidity demands consist of short-termloans. The average maturity of the Bank’s loan portfolio as at 31 December 2011 and 31 December 2010 wasless than one year. As at 31 December 2011, the Bank’s average liquid assets/average total assets ratio was11.96% and its average liquid assets/average short-term liabilities ratio was 38.43%. See “RiskManagement—Liquidity Risk.” The Bank may be exposed to maturity mismatches between its assets andliabilities (including currency mismatch), which may lead to a lack of liquidity at certain times. As of 31December 2011, the Bank’s average remaining maturity of loans and advances to customers was 239 daysand the average remaining maturity of its funds borrowed, along with the November 2011 Bond and

15

interbank money market deposits, was 1,007 days. In the event of liquidity gaps, access to other fundingsources, such as capital infusions from the Treasury, Central Bank repos or the capital markets, may not beavailable, or may be available only following delays, at higher cost, or such funding sources may be lessadvantageous to the Bank in other respects. The Bank’s liquidity risk could be increased by marketdisruptions or credit downgrades of the Bank or of the Republic of Turkey or budgetary constraints of theRepublic of Turkey, which may reduce the availability of funding. The Bank’s inability to meet its netfunding requirements due to inadequate liquidity could adversely affect its business, financial condition andresults of operations.

The Bank may be negatively affected by volatility in interest rates.

Net interest income represents a substantial proportion of the Bank’s operating profit before operatingexpense. Net interest income contributed 78.4%, 89.8% and 95.8% of operating profit before operatingexpense for the years 2011, 2010 and 2009, respectively. The Bank’s high dependence on net interest incomemay affect the stability of its earnings in time of high interest rate volatility. As at 31 December 2011, theeffect of a hypothetical 1% increase in interest rates, with all other variables held constant, would have beena TL 963 thousand increase in net profit for the year ended 31 December 2011 and the effect of ahypothetical 1% decrease in interest rates, with all other variables held constant, would have been a TL 988thousand decrease in net profit for the period.

Fluctuations in interest rates can adversely affect the Bank’s net interest income in a number of differentways. The interest rates charged by the Bank for all loans denominated in TL (except for the floating interestrate of loans under the Bridge Credit Program for Overseas Contractor Services) and for loans withmaturities of six months or less under its foreign currency denominated loan programs are fixed rates,determined prior to issuance depending upon the maturity of the loans, the loan amounts and other factors,while the Bank charges floating rates on its foreign currency denominated loans with maturities of more thansix months. As at 31 December 2011, 2010 and 2009, 71%, 55% and 54% of the Bank’s loans were at fixedrates. In decreasing interest rate environments (such as that in 2010 and the first half of 2011), the Bank’scredit products may become relatively less attractive to customers as the pricing differential becomes smallerbetween the Bank’s cash and non-cash TL loans (which are generally set based on a margin that seeks tocover the Bank’s operating expenses over its zero cost capital base) and credit products offered bycommercial banks (who typically benefit from a lower cost of funding in low interest rate environments). Anincrease in interest rates generally may decrease the value of the Bank’s fixed rate loans and, as the Bankborrows from various Turkish commercial banks and other international financial institutions to fund itslending activities, such increase may raise the Bank’s funding costs. An increase in interest rates could alsogenerally decrease the value of fixed rate debt securities in the Bank’s securities portfolio. In addition, anincrease in interest rates may increase the risk of customer default (whether directly through exporters andthe Bank’s lending programs or indirectly through the impact on the Bank’s significant base of Turkishcommercial bank intermediaries), while general volatility in interest rates may result in a gap between theBank’s interest-rate sensitive assets and liabilities. As a result, the Bank may incur additional costs andexpose itself to other risks by adjusting such asset and liability positions. Interest rates are highly sensitiveto many factors beyond the Bank’s control, including the monetary policies pursued by the Central Bank,domestic and international economic and political conditions and other factors.

Although the Bank uses various instruments and measures to manage exposure to interest rate risk (see “RiskManagement—Interest Rate Risk”), there can be no assurance that these instruments and measures will fullyprotect the Bank from the negative effects of interest rate fluctuations. Further changes in market interestrates could affect the interest rates earned on interest-earning assets differently, leading to a reduction in theBank’s net interest income and having an adverse effect on its business, financial condition and results ofoperations.

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The Bank has a substantial portfolio of Turkish sovereign debt and market risks arising from openinterest rate and currency positions could adversely affect the Bank, particularly if economic conditionsdeteriorate.

The Bank’s financial condition and results of operations are affected by changes in the market value of itssecurities portfolio. The Bank maintains a securities portfolio which primarily consists of held-to-maturitysecurities and trading securities, made up of Turkish government bonds. Interest income derived from theBank’s securities portfolio amounted to TL 57.5 million for the year ended 31 December 2011, accountingfor 18.3% of total interest income for the period, and amounted to TL 59.3 million for the year ended 31December 2010, constituting 18.8% of total interest income for the year ended 31 December 2010. TheBank’s income from securities operations depends on numerous factors, some of which are beyond itscontrol, including overall market trading activity, interest rate levels, fluctuations in currency exchange ratesand general market volatility. Although the Bank monitors closely its securities portfolio and securitiestransactions to manage its market risk (see “Risk Management—Market Risk”), market price fluctuationsaffecting the Bank’s government bonds and treasury bills may adversely affect the value of the Bank’ssecurities portfolio. In addition to any direct losses that the Bank might incur, a default by the Turkishgovernment in making payments on its debt securities would have a significant negative impact on theTurkish economy and the Turkish banking system generally and thus would also have a material adverseeffect the Bank’s business, financial condition, results of operations and prospects.

Fluctuations in foreign exchange rates, to the extent they are not adequately hedged against, mayadversely affect the Bank’s business, financial condition and results of operations.

A significant percentage of the Bank’s assets and liabilities are denominated in foreign currencies,particularly in USD and EUR. As at 31 December 2011, 59.8% of the Bank’s total assets and 59.3% of theBank’s total liabilities were denominated in foreign currencies, principally the U.S. Dollar and Euro. TheBank translates such assets and liabilities, as well as interest earned or paid on such assets and liabilities, andgains/(losses) realized upon the sale of such assets, to Turkish Lira in preparing its financial statements.Transactions denominated in foreign currencies are accounted for at the exchange rates prevailing at the dateof the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions andfrom the translation at period-end exchange rates of monetary assets and liabilities denominated in foreigncurrencies are recognized in the income statement. As a result, the Bank’s reported income is affected bychanges in the value of the Turkish Lira with respect to foreign currencies (primarily the U.S. Dollar andEuro).

The overall effect of exchange rate movements on the Bank’s results of operations depends on the rate ofdepreciation or appreciation of the Turkish Lira against other currencies in which the Bank transacts or hasmonetary assets and liabilities (primarily the U.S. Dollar and the Euro). The Bank has a policy to holdforeign currency asset and liability items together with derivatives to hedge against the foreign currency risk.For the years ended 31 December 2011 and 2010, the Bank recorded net foreign exchange gains of TL 162.5million and TL 23.9 million, respectively. For the year ended 31 December 2009, the Bank recorded a netforeign exchange loss of TL 23.4 million, principally as a result of the appreciation of the Turkish Liraagainst the U.S. Dollar. As at 31 December 2011, a hypothetical depreciation of the Turkish Lira by 10%against other currencies (holding all other variables consistent) would have had a negative TL (1,207)thousand impact on the net profit of the Bank for the year ended 31 December 2011, while a hypotheticalappreciation of the Turkish Lira by 10% against other currencies (holding all other variables consistent)would have had a positive impact on the net profit for that period of the same amount, in each case takinginto account the effect of FX-related derivatives.

Moreover, as occurred in the Turkish banking crisis in 2001, any rapid depreciation of the Turkish Liraagainst major international currencies may make it more difficult for Turkish borrowers to repay their foreigncurrency denominated loans. Although the Bank has adopted procedures and policies aimed at minimizingforeign exchange risks (see “Risk Management—Currency Risk”), these measures may not adequatelyprotect the Bank’s business, financial condition and results of operations from the effect of exchange ratefluctuations or may limit any benefit that the Bank might otherwise receive from favorable movements inexchange rates.

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The Bank is subject to credit risk in relation to its borrowers and counterparties.

The Bank’s business is subject to inherent risks concerning the credit quality of borrowers, purchasers ofexported items and contractual counterparties, including derivative counterparties and reinsurers. Changes inthe credit quality of the companies, banks and other financial institutions to which the Bank lends, or towhose credit the Bank is exposed under export credit insurance products, or in the credit quality of theBank’s counterparties, can negatively affect the value of the Bank’s assets, and lead to increased write downsand provisions for loan impairment. Many factors affect customers’ ability to repay their loans or otherobligations to the Bank. Some of these factors, including adverse changes in the economy and foreign tradedue to local, national and global factors, foreign exchange rates and increased market volatility, may bedifficult to anticipate and are outside of the Bank’s control. Other factors are dependent upon the Bank’sstrategy of growth (including tenor, currency, jurisdictions and sector focus) and the viability of the Bank’sinternal credit application and monitoring systems. See “—Operational problems or errors could have amaterial adverse impact on the Bank’s business, financial condition and results of operations” and “—TheBank’s performance depends on the reliability and capacity of its information technology systems.” TheBank is exposed to credit risk with respect to the ability of its counterparties to meet their obligations underderivative financial instruments. Exposure to any of these credit risks could have an adverse effect on theBank’s business, financial condition and results of operations.

The Bank’s allowances for credit losses could prove inadequate to cover credit losses related to its loansand contingencies.

Determining the appropriate level of allowances for credit losses necessarily requires exercise of judgment,including assumptions and estimates made in the context of changing political and economic conditions inthe regions and sectors to which the Bank lends, in particular in the financial and banking sector in Turkey.See “—The Bank has substantial credit exposure to financial institutions in Turkey” above. Consequently,there can be no guarantee that the Bank’s allowances for credit losses will be adequate to cover losses in itscredit portfolio, which, in turn, could have an adverse effect on the Bank’s financial condition and results ofoperations.

The Bank’s risk management strategies and internal controls may leave it exposed to unidentified orunanticipated risks.

The Bank’s risk management strategies and internal controls may leave it exposed to unidentified orunanticipated risks. While the Bank currently uses an internal credit ranking system to evaluate Turkishbanks, it does not have a similar system in place with respect to corporate customers or non-Turkish financialinstitutions. There can be no assurance that the Bank’s risk management and internal control policies andprocedures will adequately control, or protect the Bank against, all credit, liquidity, market and other risks.In addition, certain risks may not be accurately quantified by the Bank’s risk management systems. Some ofthe Bank’s methods of managing risk are based upon the use of historical market data which, as evidencedby events caused by the global financial crisis, may not always accurately predict future risk exposures,which could be significantly greater than historical measures indicate.

Any material deficiency in the Bank’s risk management or other internal control policies or procedures mayexpose it to significant credit, liquidity, market or operational risk, which may in turn have an adverse effecton the Bank’s business, financial condition and results of operations.

Operational problems or errors could have a material adverse impact on the Bank’s business, financialcondition and results of operations.

Similar to other financial institutions, the Bank is exposed to operational risk, which is the risk of lossresulting from inadequacy or failure of internal processes or systems or from external events. The Bank issusceptible to, among other things, fraud by employees or outsiders, including unauthorized transactions andoperational errors, clerical or record-keeping errors and errors resulting from faulty computer ortelecommunications systems (including disaster recovery and back-up systems; see “—The Bank’sperformance depends on the reliability and capacity of its information technology systems”). Although the

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Bank maintains a system of internal controls and takes steps to backup its system and will test the systembefore commencing operations in its new headquarters in Istanbul, there can be no assurance that operationalproblems or errors will not occur and that their occurrence will not have an adverse effect on the Bank’sbusiness, financial condition and results of operations.

Notwithstanding anything in this risk factor, this risk factor should not be taken as implying that the Issuerwill be unable to comply with its obligations as a company with securities admitted to the Official List.

The Bank relies on key management and qualified personnel.

The Bank is dependent on members of its Board of Directors and key management and qualified personnelfor the implementation of its strategy. Moreover, the Bank’s continued success will depend, in part, on itsability to continue to retain, motivate and attract, in cases where needed, qualified and experiencedpersonnel. While the Bank believes it has effective staff recruitment, training and incentive programs inplace, it is not possible to guarantee that constraints in human resources will not arise in the future,particularly as the Bank shifts its operations to Istanbul which has a more competitive labor market. A failureto recruit, train and/or retain necessary personnel could have an adverse effect on the Bank’s business,financial condition and results of operations.

Turkish banking regulations are administered on the basis of BRSA accounts.

The Bank’s primary regulator, the BRSA, uses the Bank’s Statutory Financial Statements to assess theBank’s compliance with banking regulations and capital adequacy requirements. Therefore, the results ofoperations and financial condition of the Bank as reflected in the IFRS Financial Statements may not reflectthe Bank’s business, financial condition or results of operations as used to determine the Bank’s performanceunder, and compliance with, Turkish regulations. In addition, the Bank uses Statutory Financial Statementsto determine whether, and to what extent, it can undertake certain activities. A summary of differencesbetween IFRS and BRSA Accounting Principles is set out in Annex A to this Offering Memorandum.

The Bank’s performance depends on the reliability and capacity of its information technology systems.

The Bank’s financial performance and its ability to meet its strategic objectives depend upon the reliabilityand security of its information technology (“IT”) systems and its systems capacity. The Bank is currentlyupdating its disaster recovery process to facilitate more rapid recovery times but until the new system is fullyoperational, the Bank has insufficient resources to handle a large-scale disaster recovery event. Additionally,operational errors could occur during the transitional phase of the IT systems upgrade or the Bank’s move toIstanbul. Even after the update to its disaster recovery system, disruptions in the Bank’s IT systems couldoccur. Additionally, the reliability and security of its IT systems depend on human operators and futureinvestments that may be required by evolving technologies. See “Business—Information Technology.” Therecan be no assurance that a disruption (even short-term) to the normal operation of the Bank’s IT systems, ordelays in increasing the capacity of the IT systems, will not have an adverse effect on the Bank’s business,financial condition or results of operations.

The Bank is subject to risks associated with anti-money laundering policies and procedures.

Although the Bank is not a commercial bank, it has implemented internal measures to prevent it from beingused as a conduit for money laundering or terrorist financing. The Bank believes that it is in compliance withapplicable anti-money laundering and anti-terrorist financing laws and regulations, although such measures,procedures and compliance are not automated and may not be completely effective in preventing third partiesfrom using the Bank and its correspondent banks as a conduit for money laundering (including illegal cashoperations) or terrorist financing without the Bank’s knowledge. Furthermore, while the Bank reviews itscorrespondent banks’ internal policies and procedures with respect to such matters, the Bank to a largedegree relies upon its correspondent banks to maintain and properly apply their own appropriate anti-moneylaundering and anti-terrorist financing procedures. If the Bank is associated with money laundering(including illegal cash operations) or terrorist financing, then its reputation could suffer and/or it couldbecome subject to fines, sanctions and/or legal enforcement (including being added to any “blacklists” that

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would prohibit certain parties from engaging in transactions with the Bank), which could have an adverseeffect on its business, financial condition and results of operations.

Risk factors relating to Turkey

The level of inflation and the state of the current account deficit in Turkey could adversely affect theBank’s business, financial condition, results of operations and prospects.

In the past, Turkey has experienced high rates of inflation. As a result of the financial crises in November2000 and February 2001, the Wholesale Price Index (“WPI”) increased to 88.60% at the end of 2001 from32.70% at the end of 2000 and the Consumer Price Index (“CPI”) increased to 68.50% from 39.00%. TheTurkish government has implemented measures to significantly reduce inflation. WPI decreased to 13.80%at the end of 2004. CPI decreased to 9.30% at the end of 2004 and 7.72% at the end of 2005. In January2005, the WPI was replaced by the Producer Price Index (“PPI”) which was approximately 2.66% at the endof 2005. Turkey’s PPI and CPI for the December 2005 to December 2006 period was 11.58% and 9.65%,respectively, for the December 2006 to December 2007 period, 5.94% and 8.39%, respectively, for theDecember 2007 to December 2008 period, was 8.11% and 10.06%, respectively and for the December 2008to December 2009 period, was 5.93% and 6.53%, respectively. The CPI rate continued its downward trendin 2010 and was 6.40% at the end of 2010, below the Central Bank’s target of 6.50%. However, at the endof 2011, CPI increased to 10.45%, above the Central Bank’s target of 8.30%. The CPI target for 2012, as setby the Central Bank, is 5.00%. Rising commodity prices are expected to constitute the main threat to pricestability. Though the Central Bank has stated that current core inflation indicators remain in line withmedium-term targets, and the rate of inflation has generally decreased since 2000, there can be no assurancethat targeted reductions in the inflation rate will be achieved, particularly if the government fails to adherestrictly to current fiscal policies or due to other macroeconomic factors, including commodity priceincreases.

Prior to the economic downturn, the current account deficit (“CAD”) widened considerably mainly due tothe widening trade deficit. CAD increased from USD 7.5 billion in 2003 (2.5% of GDP) to USD 14.4 billion(3.7% of GDP) in 2004, USD 22.2 billion (4.6% of GDP) in 2005, USD 32.2 billion (6.1% of GDP) in 2006,USD 38.3 billion (5.9% of GDP) in 2007, USD 41.9 billion (5.7% of GDP) in 2008 and decreased to USD14.0 billion (2.3% of GDP) in 2009. The current account deficit was USD 48.5 billion (6.6% of GDP) in2010, largely due to a deterioration in the foreign trade deficit, which rose to USD 71.5 billion in 2010.Robust domestic demand saw imports grow at almost 37% while exports rose only 18%, partly due toongoing economic problems in the EU, Turkey’s main trading partner. The Central Bank has cut interest ratesand raised reserve requirements for the banking sector as precautionary measures to limit the widening ofthe current account deficit. However, the CAD continued to widen in 2011, reaching USD 77.1 billion (9.7%of GDP), driven in part by higher oil prices and persistent weakness in the EU, coupled with strong Turkishdomestic demand.

There can be no assurance that inflation or the CAD will not increase further in Turkey in the near future. Inparticular, recent increases in prices, such as food prices, could cause an increase in inflation. The CentralBank has recently reduced interest rates, which could in turn lead to inflationary pressures in the Turkisheconomy. Furthermore, certain actions taken by the Turkish government to combat inflation could havenegative effects on the Turkish economy. Moreover, failure to reduce the current account deficit could havea negative impact on Turkey’s sovereign credit ratings. This could in turn limit the Bank’s access to creditmarkets and foreign financial markets and negatively impact its ability to comply with its obligations,including those under the Notes. There can be no assurance that government intervention designed tocounteract inflationary pressure and reduce CAD, but which may be harmful to the Bank’s interests, will notoccur in the future.

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The Bank is a highly regulated entity and changes to applicable laws or regulations, the interpretationor enforcement of such laws or regulations or the failure to comply with such laws or regulations couldhave an adverse impact on the Bank’s business.

The Bank is subject to a number of banking and other regulations designed to maintain the safety andfinancial soundness of banks, ensure their compliance with economic and other obligations and limit theirexposure to risk (see “Turkish Regulatory Environment”). These regulations include Turkish laws andregulations (and in particular those of the BRSA). Additionally, the implementation process of Directives ofEuropean Community numbered 2006/48/EC and 2006/49/EC (“CRD”) and Basel II is still ongoing. Inorder to monitor the implementation process of the banks on CRD/Basel II, the BRSA has requested aProgress Survey from the banks on Adaptation of CRD/Basel II every six months.

The Turkish Banking Law was approved by the Turkish Parliament on 19 October 2005 and published in theOfficial Gazette on 1 November 2005 (the “Banking Law”). This new law replaced the previous BankingLaw No. 4389 and was designed to address the dynamic nature of the banking sector, international financialand economic developments and to operate in parallel with EU banking laws and regulations as well asinternational banking standards. Compared to its predecessor, the Banking Law is much more comprehensiveand detailed. EU banking directives, international rules and standards and relevant country laws andapplications were taken into account during the preparation phase of the Banking Law. The objective of theBanking Law is to regulate the principles and procedures applicable to the establishment of confidence andstability in financial markets, the sound operation of the credit system and the protection of the rights andinterests of savers. Under the Banking Law, customers’ rights are regulated with new principles; measuresthat are to be taken against systemic risk were introduced; honesty, competence, transparency, confidentialityand ethical principles were made legal obligations; and an extensive list of judicial offenses was defined thatmay be subject to heavy penalties.

The Banking Law also places a strong emphasis on remedial measures for banks in financial difficulty.

New laws and regulations may increase the Bank’s cost of doing business or limit its activities. As some ofthe new banking laws and regulations issued from regulatory institutions have only recently been adopted,the manner in which those laws and regulations are applied to the operations of financial institutions is stillevolving. Further, new laws or regulations might be adopted, enforced or interpreted in a manner that couldhave a material adverse effect on the Bank’s business, financial condition, results of operations andprospects. Any failure to adopt adequate responses to such changes in the regulatory framework may have amaterial adverse effect on the Bank’s business, financial condition, results of operations or prospects. Finally,non-compliance with regulatory guidelines could expose the Bank to potential liabilities and fines.

The BRSA, the Turkish regulator, continuously conducts examinations in each and every bank operating inTurkey. Even a slight credit deterioration is closely monitored by the BRSA. Financial information, totalcapital ratio, open positions, liquidity, interest rate risk and credit portfolio are followed up in detail atfrequent intervals. Although the Bank has implemented procedures to monitor these issues, there can be noguarantee that the Bank will not breach the ratios and limits set by the regulator.

The Turkish foreign exchange markets have historically been volatile, which could adversely affectTurkey’s general economy as well as the Bank’s business, financial condition, results of operations orprospects.

As at 31 December 2011, 59.8% of the Bank’s assets were denominated in foreign currencies, of which76.9% were in U.S. dollars, 22.8% in Euro and 0.3% in other foreign currencies. At the same date, 59.3% ofthe Bank’s liabilities were denominated in foreign currencies, of which 70.1% were in U.S. Dollars and28.8% in Euro. The Bank translates such assets and liabilities, as well as gains and losses realized on the saleof such assets, into TL in preparing its financial statements, as a result of which the Bank’s reported incomemay be affected by changes in the value of the TL relative to such foreign currencies, particularly the U.S.Dollar and Euro.

The Bank seeks to manage foreign currency risk by using natural hedges that arise from offsetting foreigncurrency-denominated assets and liabilities, and the remaining foreign exchange exposures are hedged on a

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portfolio basis with derivative financial instruments that primarily include forward foreign exchangecontracts and currency swaps. As part of its strategy to manage the impact of exchange rates, the Bank’strading activities are used only for hedging purposes and not for speculative purposes so as to maintain anearly square foreign exchange position (i.e., no significant open position). If the Bank’s foreign currencyrisk management policy should change, any significant depreciation of the TL against the U.S. Dollar orother major currencies could have a negative effect on the Bank’s ability to repay its debt denominated incurrencies other than the Turkish Lira, including the amounts due under the Notes.

As a result of the financial crises in Turkey in November 2000 and February 2001, the Turkish Liradepreciated from TL 0.6718 per dollar on 31 December 2000 to TL 1.4466 per dollar on 31 December 2001and then further depreciated to TL 1.6397 per dollar on 31 December 2002. As the Turkish governmentbegan implementing economic and financial reforms, the value of the Turkish Lira increased to TL 1.3933per dollar on 31 December 2003. The Turkish Lira further appreciated to TL 1.3363 per dollar on 31December 2004 and was TL 1.3418 per dollar on 31 December 2005, TL 1.4056 per dollar on 29 December2006, TL 1.1593 per dollar on 31 December 2007, TL 1.5218 per dollar on 31 December 2008, TL 1.4873per dollar on 31 December 2009, TL 1.5376 per dollar on 31 December 2010 and TL 1.8889 per dollar on31 December 2011. Although the exchange rate experienced increased volatility in the second half of 2011,it remained broadly stable over the first quarter of 2012 and was TL 1.7809 per dollar on 31 March 2012.

The Turkish Lira has been subject to significant volatility in the years since the financial crisis of 2000 to2002 (see further “Exchange Rates”). Such significant currency volatility in the future could impair theBank’s business strategies and have a material adverse effect on its business, financial condition, results ofoperations or prospects, particularly if the Bank increasingly accesses the international capital markets forfunding.

Amounts in Turkish Lira with respect to periods before 2005 have been translated into New Turkish Lira atan exchange rate of TL 1,000,000 = TL 1.00.

Political developments in Turkey may have a material adverse effect on the Bank’s business.

Turkey has been a parliamentary democracy since 1923. Unstable coalition governments have been common,and in the 89 years since establishing its parliamentary system, Turkey has had 61 governments, withpolitical disagreements frequently resulting in early elections. Furthermore, the Turkish militaryestablishment has historically played a significant role in Turkish government and politics, intervening in thepolitical process, and there can be no assurance that the Turkish military establishment will not intervene inthe political process in the future.

On 12 September 2010, Turkish voters voted in support of a public referendum containing a number ofchanges to the constitution. The referendum contained articles which (i) change the composition and thestructure of the Constitutional Court and the Supreme Court of Judges and Prosecutors, (ii) give civil servantsthe right of collective bargaining and (iii) provide for positive discrimination claims on behalf of children,the elderly and the disabled.

A general election was held on 12 June 2011 in which 24 political parties and independent candidatescontested 550 seats in the Turkish parliament. The currently ruling Justice and Development Party (Adaletve Kalkınma Partisi) (the “AKP”) received approximately 50% of the total votes, whereas the RepublicanPeople’s Party (Cumhuriyet Halk Partisi) (the “CHP”) and Nationalist Movement Party, (Milliyetçi HareketPartisi) (the “MHP”) received 26% and 13% of the total votes, respectively. Additionally 36 independentmembers received approximately 6% of the total votes. Twenty-nine independent members of parliamentjoined the Peace and Democracy Party (Barış ve Demokrasi Partisi) (the “BDP”) following the elections.Any significant changes in the political environment, including changes that result in the failure of thegovernment to devise or implement required or appropriate economic programs, may adversely affect thestability of the Turkish economy and, in turn, the Bank’s business, financial condition, results of operationsor prospects.

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The market for Turkish securities is subject to a high degree of volatility due to developments andperceptions of risks in other countries.

In general, investing in the securities of issuers that have operations primarily in emerging markets likeTurkey involves a higher degree of risk than investing in the securities of issuers with substantial operationsin the United States, the countries of the European Union (“EU”) or other similar jurisdictions. Summarizedbelow are a number of risks relating to operating in Turkey and other emerging markets.

The market for securities issued by Turkish companies is influenced by economic and market conditions inTurkey, as well as, to varying degrees, by market conditions in both emerging market countries and moredeveloped economies including those in the European Union and the United States. Although economicconditions differ in each country, the reaction of investors to developments in one country may cause capitalmarkets in other countries to fluctuate. Developments or economic conditions in other emerging marketcountries have at times significantly affected the availability of credit to the Turkish economy and resultedin considerable outflows of funds and declines in the amount of foreign investments in Turkey. Crises inother emerging market countries may diminish investor interest in securities of Turkish issuers, including theBank’s, which could adversely affect the market price of the Bank’s securities.

Moreover, financial turmoil in any emerging market country tends to adversely affect the prices of equity anddebt securities of all emerging market countries as investors move their money to more stable, developedmarkets. An increase in the perceived risks associated with investing in emerging economies could dampencapital flows to Turkey and adversely affect the Turkish economy. There can be no assurance that investors’interest in Turkey will not be negatively affected by events in other emerging markets or the global economyin general. See also “—The Bank’s business is subject to macroeconomic and financial market conditions.”Exchange controls implemented by the Turkish government could adversely affect the business, operations,or prospects of the Bank.

Any claims against the Bank under the Notes and the related transaction documents will be unsecured claimspayable from, among other sources, the Bank’s funds in Turkey. The ability of the Bank to make any suchpayments from Turkey will depend, among other factors, upon the Turkish government not having imposedany prohibitive foreign exchange controls, the Bank’s ability to obtain U.S. Dollars in Turkey and the Bank’sability to secure any applicable necessary approval from the relevant authority, which could be affected bychanges in Turkish exchange controls. Any such restrictions or failure to obtain the necessary approval couldaffect the Bank’s ability to make payment of interest and principal under the Notes.

Uncertainties relating to Turkey’s accession to the European Union may adversely affect the Turkishfinancial markets and result in greater volatility.

Turkey has been a candidate country for EU membership since the Helsinki European Council of December1999. The EU resolved on 17 December 2004 to commence accession negotiations with Turkey and affirmedthat Turkey’s candidacy will be judged by the same twenty-eight criteria (or “Chapters”) applied to othercandidates. These criteria require a range of political, legislative and economic reforms to be implemented.Among these legislative reforms are two new major laws: Turkish Commercial Code and Code ofObligations which are replacing current Turkish Commercial Code No. 6762 and Code of Obligations No.818, respectively (see “—Recent changes in Turkish law may have a significant impact”).

On October 12, 2011, the European Commission released the 2011 Progress Report assessing Turkey’sachievements towards accession into the EU over the prior twelve months. The Commission concluded thatTurkey has made progress in meeting EU membership criteria; however, it stated that further progress isneeded with respect to fundamental rights. The report further stressed that Turkey continued to sufficientlyfulfill the political criteria and continued improving its ability to take on the obligations of EU membershipas progress was made in most areas, particularly company law, statistics and trans-European networks.However, the Commission stated that further efforts towards alignment are needed in areas such as theenvironment, public procurement, freedom to provide services, social policy, employment and taxation.There can be no assurance that the EU will continue to maintain an open approach to Turkey’s EUmembership, that Turkey will be able to meet all the criteria applicable to becoming a member state or thatTurkey will become a member state.

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Recent changes in Turkish law may have a significant impact.

Recently, three major pieces of legislation have been subject to substantial amendment, namely the TurkishCode of Obligations, the Turkish Code of Civil Procedures and the Turkish Commercial Code. Both theTurkish Code of Obligations and the Turkish Commercial Code are expected to come into effect as at 1 July2012, and the Turkish Code of Civil Procedures became effective on 1 October 2011. In addition, the DraftCapital Markets Law was opened to discussion on 9 March 2012 by the CMB. However, the entry into effectdate with respect to the Draft Capital Markets Law has not yet been determined and the law therefore is stillsubject to amendments.

This legislation will implement substantial changes to Turkish law and it is anticipated that it will have animpact on commercial life in Turkey and on the Bank’s business, financial condition, results of operations orprospects. It is also possible that amendments will be made to the respective laws from time to time untiltheir effective date.

Conflict, civil unrest and terrorism within Turkey or nearby countries may have a material adverseeffect on the Bank’s business, financial condition, results of operations or prospects.

Turkey is located in a region that has been subject to ongoing political and security concerns, especially inrecent years. Historically, political uncertainty within Turkey and in certain neighboring countries (such asLibya, Iran, Iraq, Georgia, Egypt, Armenia and Syria) has been one of the potential risks associated withinvestment in Turkish securities. There have also been additional concerns about political stability in theMiddle East and an increase in the risk of terrorist acts against the United States and its allies, includingTurkey, since the 11 September 2001 terrorist attacks in the United States and the commencement of militaryaction taken by the United States and its allies in March 2003. Increased incidents of violence, sectarianconflict and rebellions in nearby areas (such as Iraq) have also been reported. Recently, the level of unrest inthe Middle East, North Africa and in Syria increased, including in areas bordering on Turkey, which, amongother things, may lead to further risk of volatility in political conditions and financial markets.

Turkey experiences ongoing tensions with domestic terrorist and ethnic separatist groups, such as thePeople’s Congress of Kurdistan (PKK). In the past 10 years, these have resulted in a number of bombingincidents in several Turkish cities, including in Istanbul, Antalya, Marmaris and Ankara.

While such attacks have not had a major negative impact on Turkey’s capital markets, levels of tourism andforeign investment, among other things, additional attacks may occur in the future with such a negativeimpact, which could materially adversely affect the Bank’s business, financial condition, results ofoperations and prospects.

Turkey is located in a high-risk earthquake zone.

On 17 August 1999, an earthquake measuring 7.6 on the Richter scale struck the area surrounding Izmit. On12 November 1999, another earthquake measuring 7.2 on the Richter scale occurred in the city of Düzce,between Ankara and Istanbul. On 8 March 2010, an earthquake measuring 6.0 on the Richter scale struck theeastern province of Elazig. More recently, on 23 October 2011 an earthquake measuring 7.2 on the Richterscale occurred in the city of Van, one of the biggest cities in the eastern region of Turkey, and the same areaexperienced a more minor earthquake on 9 November 2011. Almost 45% of Turkey’s population and mostof its economic resources are located in a first-degree earthquake risk zone (the zone with the highest levelof risk of damage from earthquakes) and a number of the Bank’s properties and projects in Turkey are locatedin high-risk earthquake zones.

The Bank maintains real property insurance covering risk of loss from earthquake, fire, flood, terror orburglary, but does not have wider business interruption insurance or insurance for loss of profits, which arenot generally available in Turkey. The occurrence of a severe earthquake could adversely affect one or moreof the Bank’s facilities, causing an interruption in, and an adverse effect on, its business. In addition, as hasbeen seen in the case of the recent earthquake and tsunami affecting Japan, a severe earthquake couldseverely harm the Turkish economy in general, which could adversely affect the Bank’s business, financialcondition, results of operations and prospects.

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The Bank’s credit ratings may not reflect all risks, and changes to Turkey’s credit ratings may affect theBank’s ability to obtain funding.

Credit ratings affect the cost and other terms upon which the Bank is able to obtain funding. Rating agenciesregularly evaluate the Bank and their ratings of its long-term debt are based on a number of factors, includingits financial strength as well as conditions affecting the financial services industry generally. As at 31December 2011, the Bank’s long-term foreign currency ratings were Ba1 with a positive outlook fromMoody’s and BB with a positive outlook from Standard & Poor’s. The Bank’s Ba1 foreign currency issuerand long-term senior unsecured debt ratings were placed under review on 16 March 2012 for a possibledowngrade by Moody’s because of a change in methodology. One or more independent credit rating agenciesmay also assign credit ratings to the Notes. Any ratings of either the Bank or the Notes may not reflect thepotential impact of all risks related to the Notes’ structure, the global financial market and the Turkishbanking sector, additional factors described in this “Risk Factors” section and any other factors that mayaffect the value of the Notes. There can be no assurance that the rating agencies will maintain the Bank’scurrent ratings or outlooks, which could materially adversely affect the trading values of the Notes and theBank’s ability to finance its operations and the expected expansion of its business going forward, either ofwhich could materially adversely affect the Bank’s business, financial conditions, results of operations andprospects. A downgrade or potential downgrade of the Turkish sovereign rating could negatively affect theperception these agencies could have of the Bank’s rating. Investors should be aware that a credit rating isnot a recommendation to buy, sell or hold securities and may be revised or withdrawn by its assigning ratingagency at any time.

Risk factors relating to the Notes

U.S. persons investing in the Notes may have indirect contact with countries sanctioned by the Office ofForeign Assets Control of the U.S. Department of Treasury as a result of the Bank’s investments in andbusiness with countries on the sanctions list.

The Office of Foreign Assets Control of the U.S. Department of Treasury (“OFAC”) administers regulationsthat restrict the ability of U.S. persons to invest in, or otherwise engage in business with, certain countries,including Iran and Sudan, and specially designated nationals (together “Sanction Targets”). As the Bank isnot a Sanction Target, OFAC regulations do not prohibit U.S. persons from investing in, or otherwiseengaging in business with the Bank. However, to the extent that the Bank invests in, or otherwise engages inbusiness with, Sanction Targets, U.S. persons investing in the Bank may incur the risk of indirect contactwith Sanction Targets. The Bank’s current policy is not to engage in any business with Sanction Targetsalthough it is not restricted from doing business in countries that are the subject of OFAC sanctions.

Investors may have difficulty enforcing foreign judgments against the Bank or its management.

All of the Bank’s directors and executive officers are residents of Turkey and a substantial portion of theassets of the Bank and such persons are located in Turkey. As a result, it may be difficult for investors toeffect service of process upon the Bank or such persons outside Turkey, or to enforce judgments or arbitralawards obtained against such parties outside Turkey.

Under the International Private and Procedure Law of the Republic of Turkey (Law No. 5718), a judgmentof a court established in a country other than the Republic of Turkey may not be enforced in Turkish courtsin certain circumstances. There is no treaty between the United Kingdom and Turkey providing for reciprocalenforcement of judgments. Turkish courts have rendered at least one judgment in the past confirming defacto reciprocity between Turkey and the United Kingdom. However, since de facto reciprocity is decidedby the relevant court on a case-by-case basis, there is no certainty as to the enforceability of court judgmentsobtained in the United Kingdom by Turkish courts in the future.

Modification, waivers and substitutions of the Notes approved by certain Noteholders may adverselyaffect other dissenting Noteholders.

The Conditions of the Notes contain provisions for calling meetings of Noteholders to consider mattersaffecting their interests generally. These provisions permit defined majorities to bind all Noteholders

25

including Noteholders who did not attend and vote at the relevant meeting and Noteholders who voted in amanner contrary to the majority.

Adverse changes of law may affect Notes.

The Conditions of the Notes are governed by English law and the terms are specified with reference to thatlaw as in effect as at the date of this Offering Memorandum. Similarly, the enforcement rights of theNoteholders against the Bank and its assets in Turkey assume the application of Turkish law as presently ineffect. No assurance can be given as to the impact on these Notes of any possible judicial decision or changeto English or Turkish law or administrative practice after the date of this Offering Memorandum.

Exchange rate risks and exchange controls may adversely affect payments on the Notes.

The Bank will pay principal and interest on the Notes in U.S. dollars. This presents certain risks relating tocurrency conversions if an investor’s financial activities are denominated principally in a currency orcurrency unit (the “Investor’s Currency”) other than U.S. dollars. These include the risk that exchange ratesmay significantly change (including changes due to devaluation of the U.S. Dollar or revaluation of theInvestor’s Currency) and the risk that authorities with jurisdiction over the Investor’s Currency may imposeor modify exchange controls. An appreciation in the value of the Investor’s Currency relative to the U.S.Dollar would decrease (1) the Investor’s Currency-equivalent yield on the Notes, (2) the Investor’s Currency-equivalent value of the principal payable on the Notes and (3) the Investor’s Currency-equivalent marketvalue of the Notes.

Government and monetary authorities may impose (as some have done in the past) exchange controls thatcould adversely affect an applicable exchange rate. As a result, any Noteholder whose Investor Currency isnot the U.S. Dollar may receive less interest or principal than expected, or no interest or principal.

The Notes constitute unsecured obligations of the Bank.

The Bank’s obligations under the Notes constitute unsecured obligations of the Bank. Accordingly, anyclaims against the Bank under the Notes would be unsecured claims. The ability of the Bank to pay suchclaims will depend upon, among other factors, its liquidity, overall financial strength and ability to generateasset flows.

Claims of Noteholders under the Notes are effectively junior to those of certain other creditors.

The Notes are unsecured and unsubordinated obligations of the Bank. Subject to statutory preferences, theNotes will rank equally with any of the Bank’s other unsecured and unsubordinated indebtedness. However,the Notes will be effectively subordinated to all of the Bank’s secured indebtedness, to the extent of the valueof the assets securing such indebtedness, and other preferential obligations under Turkish law (including,without limitation, claims that the Central Bank may have against the Bank with respect to certain loansmade by it to the Bank). As at 31 December 2011, the Bank did not have any assets pledged as security inconnection with its borrowings.

There may not be an active trading market for the Notes.

There can be no assurance that an active trading market for the Notes will develop, or, if one does develop,that it will be maintained. If an active trading market for the Notes does not develop or is not maintained, themarket or trading price and liquidity of the Notes may be adversely affected. If the Notes are traded aftertheir initial issuance, they may trade at a discount to their initial offering price, depending upon prevailinginterest rates, the market for similar securities, general economic conditions and the financial condition ofthe Bank. Although application has been made for the Notes to be admitted to listing and to trading on theRegulated Market of the London Stock Exchange, there can be no assurance that such application will beapproved or that an active trading market will develop. Accordingly, the Bank can give no assurance as tothe development or liquidity of any trading market for the Notes.

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The market price of the Notes may be volatile.

The market price of the Notes could be subject to significant fluctuations in response to the Bank’s actual oranticipated operating results, and those of the Bank’s competitors, adverse business developments, changesto the regulatory environment in which the Bank operates, changes in financial estimates by securitiesanalysts and the actual or expected sale of a large number of Notes, as well as other factors, including thetrading market for Turkish sovereign debt. In addition, in recent years the global financial markets haveexperienced significant price and volume fluctuations which, if repeated in the future, could adversely affectthe market price of the Notes irrespective of factors specific to the Bank or the Notes.

The Bank will have the right to redeem the Notes upon the occurrence of certain legislative changesrequiring it to pay withholding taxes in excess of current levels, if any, applicable to interest or otherpayments on the Notes.

The withholding tax rate on interest payments in respect of Turkish bonds issued outside of Turkey variesdepending on the original maturity of such bonds as specified under decree numbered 2010/1182 dated 20December 2010 (the “2010 Decree”). Pursuant to the 2010 Decree, (i) with respect to bonds with a maturityof less than one year, the withholding tax rate on interest is 10%, (ii) with respect to bonds with a maturityof at least one year and less than three years, the withholding tax rate on interest is 7%, (iii) with respect tobonds with a maturity of at least three years and less than five years, the withholding tax rate on interest is3%, and (iv) with respect to bonds with a maturity of five years and more, the withholding tax rate on interestis 0%. The Bank will have the right to redeem the Notes, on any Interest Payment Date prior to the maturitydate of the Notes, if (a) upon the occurrence of a change in, or amendment to, the laws or regulations of aRelevant Jurisdiction (as defined in Condition 9), or (b) any change in the application or officialinterpretation of the laws or regulations of a Relevant Jurisdiction, which change or amendment becomeseffective after 20 April 2012 (the date hereof), on the next Interest Payment Date the Bank would be required:(i) to pay additional amounts of Taxes (as defined in Condition 9); and (ii) to make any withholding ordeduction for, or on account of, any Taxes imposed or levied by or on behalf of the Relevant Jurisdiction ata rate in excess of the rate currently applicable to such bonds, and such requirement cannot be avoided bythe Bank taking reasonable measures available to it. The Bank cannot assure Noteholders that, upon such aredemption, they will be able to reinvest the amounts received upon redemption at a rate that will providethe same rate of return as their investment in the Notes.

Transfer of the Notes will be subject to certain restrictions.

Although the Notes have been registered with the CMB as debt securities to be offered outside Turkey, theNotes have not been and will not be registered under the Securities Act or any U.S. state securities laws.Prospective investors may not offer or sell the Notes, except pursuant to an exemption from, or in atransaction not subject to, the registration requirements of the Securities Act and applicable state securitieslaws. Similar restrictions will apply in other jurisdictions. The Notes may not be offered, sold or otherwisetransferred except in transactions that will not cause the Bank to become required to be registered as aninvestment company under the Investment Company Act. Prospective investors should read the discussionunder the heading “Transfer Restrictions” for further information about these transfer restrictions. It is theirobligation to ensure that their offers and sales of the Notes within the United States and other countriescomply with any applicable securities laws.

The Bank has not registered, and will not register, as an “investment company” under the InvestmentCompany Act.

The Bank will seek to qualify for an exemption from the definition of “investment company” under theInvestment Company Act and will not register as an investment company in the United States under theInvestment Company Act. The Investment Company Act provides certain protections to investors andimposes certain restrictions on registered investment companies, none of which will be applicable to theBank or its investors.

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Investors in the Notes must rely on DTC, Euroclear and Clearstream procedures.

The Regulation S Notes will be represented on issue by an Unrestricted Global Certificate that will bedelivered to a common depositary for, and registered in the name of a common nominee of, Euroclear andClearstream, Luxembourg. Except in the circumstances described in the Unrestricted Global Certificate,investors will not be entitled to receive Notes in definitive form. Euroclear and Clearstream, Luxembourgand their respective participants will maintain records of the beneficial interests in the Unrestricted GlobalCertificate. While the Notes are represented by the Unrestricted Global Certificate, investors will be able totrade their beneficial interests only through Euroclear and Clearstream, Luxembourg and their respectiveparticipants.

The Rule 144A Notes will be represented on issue by a Restricted Global Certificate that will be depositedwith a nominee for DTC. Except in the circumstances described in the Restricted Global Certificate,investors will not be entitled to receive Notes in definitive form. DTC and its direct and indirect participantswill maintain records of the beneficial interests in the Restricted Global Certificate. While the Notes arerepresented by the Restricted Global Certificate, investors will be able to trade their beneficial interests onlythrough DTC. While the Notes are represented by the Restricted Global Certificates, the Issuer will dischargeits payment obligation under the Notes by making payments through the relevant clearing systems. A holderof a beneficial interest in a Global Certificate must rely on the procedures of the relevant clearing system andits participants to receive payments under the Notes. The Issuer has no responsibility or liability for therecords relating to, or payments made in respect of, beneficial interests in either Global Certificate. Holdersof beneficial interests in a Global Certificate will not have a direct right to vote in respect of the Notes.Instead, such holders will be permitted to act only to the extent that they are enabled by the relevant clearingsystem and its participants to appoint appropriate proxies.

EU Savings Directive.

Under EC Council Directive 2003/48/EC on the taxation of savings income, Member States are required toprovide to the tax authorities of another Member State details of payments of interest (or similar income)paid by a person within its jurisdiction to an individual resident in that other Member State (or to certainlimited types of entities established in that other Member State). However, for a transitional period,Luxembourg and Austria are instead required (unless during that period they elect otherwise) to operate awithholding system in relation to such payments (the ending of such transitional period being dependentupon the conclusion of certain other agreements relating to information exchange with certain othercountries). A number of non-EU countries and territories, including Switzerland, have adopted similarmeasures (a withholding system in the case of Switzerland).

The European Commission has proposed certain amendments to the Directive, which may, if implemented,amend or broaden the scope of the requirements described above.

If a payment were to be made or collected through a Member State which has opted for a withholding systemand an amount of, or in respect of, tax were to be withheld from that payment, neither the Issuer nor anyPaying Agent nor any other person would be obliged to pay additional amounts with respect to any Note asa result of the imposition of such withholding tax. The Issuer is required to maintain a Paying Agent in aMember State that is not obliged to withhold or deduct tax pursuant to the Directive.

Further Notes may be issued without the consent of the Noteholders.

The Bank may from time to time create and issue further Notes without the consent of the Noteholders,subject to terms and conditions which are the same as those of the Notes, or the same except for the amountof the first new payment of interest. Such new Notes may be consolidated and form a single series with theoutstanding Notes even if doing so may adversely affect the value of the original Notes.

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USE OF PROCEEDS

The net proceeds of the issue of the Notes will be approximately USD 493,885,000 after the deduction ofthe combined management and underwriting commission and the selling concession, but before thededuction of certain expenses and professional fees incurred in connection with the offering of the Notes,and will be used by the Bank for export and project financing purposes.

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EXCHANGE RATES

The following table sets forth, for the periods indicated, information concerning the period average andperiod-end buying rates for U.S. Dollars for the periods indicated. The rates set forth below are providedsolely for your convenience and were not used by the Bank in the preparation of the IFRS FinancialStatements included elsewhere in this Offering Memorandum. No representation is made that Turkish Liracould have been, or could be, converted into U.S. Dollars at that rate or at any other rate.

Period Average(1) Period End(2)

TL per USD TL per USD––––––––––––––––––––––––––––––––––– ––––––––––––––– ––––––––––––––––– –––––––––––For the month ended 31 March 2012 ................................ 1.7729 31 March 2012 1.7809For the month ended 29 February 2012 ............................ 1.7498 29 February 2012 1.7375For the month ended 31 January 2012 .............................. 1.8333 31 January 2012 1.76402011.................................................................................... 1.6708 31 December 2011 1.88892010.................................................................................... 1.5004 31 December 2010 1.53762009.................................................................................... 1.5471 31 December 2009 1.48732008.................................................................................... 1.2935 31 December 2008 1.52182007.................................................................................... 1.3015 31 December 2007 1.15932006.................................................................................... 1.4311 31 December 2006 1.40562005.................................................................................... 1.3408 31 December 2005 1.34182004.................................................................................... 1.4223 31 December 2004 1.33632003.................................................................................... 1.4935 31 December 2003 1.39332002.................................................................................... 1.5058 31 December 2002 1.63972001.................................................................................... 1.2254 31 December 2001 1.44662000.................................................................................... 0.6237 31 December 2000 0.6718

Source: Central Bank

(1) Represents the arithmetic average of the monthly averages, where monthly averages were calculated by taking the daily average ofthe TL/USD exchange rates. Amounts in Turkish Lira with respect to periods before 2005 have been translated into New Turkish Liraat an exchange rate of TL 1,000,000 = TL 1.00.

(2) Represents the TL/USD exchange rates for the purchase of U.S. Dollars determined by the Central Bank on the previous working day.Amounts in Turkish Lira with respect to periods before 2005 have been translated into New Turkish Lira at an exchange rate of TL1,000,000 = TL 1.00.

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CAPITALIZATION

The following table sets forth the medium- and long-term indebtedness and equity of the Bank as at 31December 2011 (on a nominal basis). The table below should be read in conjunction with “Management’sDiscussion and Analysis of Financial Condition and Results of Operations—Liquidity” and “Management’sDiscussion and Analysis of Financial Condition and Results of Operations—Shareholders’ Equity.” Exceptas specified below, there have been no material changes to the Bank’s capitalization as presented below since31 December 2011.

As at 31 December

2011––––––––––

(in thousandsof TL)

Medium- and long-term indebtedness:Medium- and long-term funding loans(1) ...................................................................................................................................... 610,429Medium- and long-term debt securities in issue(2)........................................................................................................................ 960,419Total medium- and long-term indebtedness ................................................................................................................................ 1,570,848

––––––––––Equity:Paid in share capital .................................................................................................................................................................... 2,812,518Other reserves .............................................................................................................................................................................. 3,630Retained earnings ........................................................................................................................................................................ 831,912

––––––––––Total equity ................................................................................................................................................................................ 3,648,060

––––––––––Total capitalization .................................................................................................................................................................... 5,218,908

––––––––––––––––––––

(1) The Bank’s medium- and long-term indebtedness is indebtedness that has a maturity of more than one year and consists of loans fromthe European Investment Bank, the World Bank and the subordinated loan from the Turkish Treasury. See “Management’s Discussionand Analysis of Financial Condition and Results of Operations— Financial Condition—Liabilities—Funds Borrowed” for moreinformation and “Management’s Discussion and Analysis of Financial Condition and Results of Operations— Recent Developments”for more information regarding the Bank’s borrowing activity since 31 December 2011.

(2) Indebtedness associated with the November 2011 Bond.

The Bank expects to pay a dividend of TL 196 million to the Turkish Treasury with respect to 2011.

For a description of the Bank’s principal sources of capital (including periodic capital contributions andtransfers of monies from certain Turkish state funds as well as the payments by the state pursuant to itspolitical indemnification of the Bank), see “Management’s Discussion and Analysis of Financial Conditionand Results of Operations—Liquidity” and “Management’s Discussion and Analysis of Financial Conditionand Results of Operations—Shareholders’ Equity.”

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SELECTED FINANCIAL INFORMATION

The following tables set forth, for the periods and as at the dates indicated, selected financial data of the Bankderived from the IFRS Financial Statements (presented under IFRS) included elsewhere in this OfferingMemorandum.

Prospective investors should read the following information in conjunction with “Presentation of Financialand Other Information”, “Capitalization”, “Management’s Discussion and Analysis of Financial Conditionand Results of Operations”, as well as the IFRS Financial Statements.

Income Statement Data


2011 2010 2009––––––––– ––––––––– –––––––––






––––––––– ––––––––– –––––––––Impairment losses on loans, net .......................................................................................... (18,413) (19,389) (52,339)Foreign exchange gains/(losses), net .................................................................................. 162,498 23,875 (23,377)Gains/(losses) on financial instruments classified as held fortrading, net ........................................................................................................................ (124,230) (4,883) 63,911

Other operating income ...................................................................................................... 53,403 42,466 35,007––––––––– ––––––––– –––––––––

Operating profit before operating expenses.................................................................... 337,533 321,641 404,154Operating expenses.............................................................................................................. (107,255) (65,171) (61,713)


––––––––– ––––––––– –––––––––Other comprehensive income:Change in fair value gains/(losses) on available-for-salefinancial assets .................................................................................................................. (4,907) 1,458 8,618

Amortization of the fair value gains/(losses) of held-to-maturityinvestments previously classified as available-for-salefinancial assets .................................................................................................................. (45) (101) (114)


––––––––– ––––––––– –––––––––––––––––– ––––––––– –––––––––

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Balance Sheet Data


2011 2010 2009––––––––– ––––––––– –––––––––


ASSETSCash and due from banks .................................................................................................... 667,369 886,771 2,059,197Trading securities ................................................................................................................ 342,935 308,488 150,149Derivative financial instruments .......................................................................................... 15,895 1,885 16,548Loans and advances to customers ...................................................................................... 7,997,214 4,106,275 3,854,426Investment securitiesAvailable-for-sale................................................................................................................ 11,295 15,202 13,744Held-to-maturity ................................................................................................................ 511,436 891,703 309,068


––––––––– ––––––––– –––––––––Total assets.......................................................................................................................... 9,583,144 6,229,566 6,427,109



––––––––– ––––––––– –––––––––––––––––– ––––––––– –––––––––EQUITYShare capital ........................................................................................................................ 2,000,000 2,000,000 2,000,000Adjustment to share capital ................................................................................................ 812,518 812,518 812,518

––––––––– ––––––––– –––––––––Total paid in share capital.................................................................................................... 2,812,518 2,812,518 2,812,518Other reserves ...................................................................................................................... 3,630 8,582 7,225Retained earnings ................................................................................................................ 831,912 809,042 837,460

––––––––– ––––––––– –––––––––Total equity ........................................................................................................................ 3,648,060 3,630,142 3,657,203

––––––––– ––––––––– –––––––––––––––––– ––––––––– –––––––––Total liabilities and equity ................................................................................................ 9,583,144 6,229,566 6,427,109

––––––––– ––––––––– –––––––––––––––––– ––––––––– –––––––––

Cash Flow Statement Data


2011 2010 2009––––––––– ––––––––– –––––––––


Net cash from/(used in) operating activities ...................................................................... (4,364,041) (101,236)(*) 239,177(*)

Net cash from/(used in) investing activities ........................................................................ 391,110 (578,375)(*) (70,426)(*)

Net cash from/(used in) financing activities........................................................................ 3,782,047 (504,387) 1,288,621Effects of exchange-rate changes on cash and cash equivalents ........................................ (2,674) (4,676) (12,184)Cash and cash equivalents at the beginning of the period .................................................. 860,471 2,049,145 603,957Cash and cash equivalents at the end of the period ............................................................ 666,913 860,471 2,049,145

(*) The figures for the year ended 31 December 2010 and 2009 have been reclassified to conform to changes in presentation in the yearended 31 December 2011. The figures presented in the table for the year ended 31 December 2010 and 2009 are therefore unaudited.

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Key Ratios


–––––––––––––––––––––––––––––––2011 2010 2009

––––––––– ––––––––– –––––––––(in percentages)

Average liquid assets/Average total assets(1) ........................................................................ 11.96% 29.35% 20.05%Average liquid assets/Average short-term liabilities(1) ........................................................ 38.43% 137.21% 91.64%Return on average assets(2) .................................................................................................. 3.19% 4.13% 5.75%Return on average equity(3) .................................................................................................. 6.31% 7.02% 10.38%Equity to assets ratio(4) ........................................................................................................ 50.68% 58.84% 55.39%


(*) In this table, average liquid assets, average total assets, average short-term liabilities and average equity were each calculated on amonthly basis. See “Presentation of Financial and Other Information” and “Selected Statistical and Other Information—AverageBalance Sheet and Interest Rate Data.”

(1) Liquid assets consists of cash and due from banks, money market placements, financial assets held for trading and financial assetsavailable for sale.

(2) Return on average assets is calculated as net income for the period divided by average total assets for the period.

(3) Return on average equity is calculated as net income for the period divided by average equity for the period.

(4) Equity to assets ratio represents average equity for the period divided by average total assets for the period.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

The following is a discussion of the Bank’s results of operations and financial condition as of and for theyears ended 31 December 2011, 2010 and 2009. Unless otherwise specified or the context otherwiserequires, the financial information set forth and discussed herein is based on the Bank’s IFRS FinancialStatements. Prospective investors should read this discussion in conjunction with the sections entitled“Selected Financial Information”, “Selected Statistical and Other Information”, “Capitalization” and theBank’s IFRS Financial Statements and the related notes thereto, which are included elsewhere in this offeringmemorandum.

Overview

The primary purpose of the Bank as Turkey’s official export credit agency is to enhance the availability ofexport support by providing readily available, economical and affordable sources of funds in the form ofloans, insurance and guarantee products and programs that satisfy the export financing needs of Turkishexporters and overseas contractors.

The Bank currently supports Turkish exporters, contractors and investors through various credit, guaranteeand insurance programs similar to other international export credit agencies. Its most significant product isshort-term loans, which as at 31 December 2011 accounted for 81% of its total loans. The Bank’s activitiesinclude loan programs and insurance/guarantee programs.

Although the Bank operates principally within Turkey, its business is subject to macroeconomic trends inmany other regions of the world as well as those trends within Turkey. The level of demand for the Bank’sservices and products turns on world demand for Turkish exports. The Bank’s services and products areprincipally utilized by exporters to the United States, Western Europe, the regions of Russia and the CISstates, Central Europe, the Middle East, Asia and also Africa.

The Bank has played a crucial and expanding role in the implementation of the export-led growth strategiespursued by all Turkish governments since 1980, and its operations reflect Turkish government policies.

As at 31 December 2011, the Bank’s capital adequacy ratio was 95.9% (under Basel I). As at 31 December2010 and 2009, the Bank’s capital adequacy ratio was 142.8% and 125.7%, respectively (under Basel I).

As at 31 December 2011, the Bank’s total assets amounted to TL 9.6 billion as compared to TL 6.2 billionand TL 6.4 billion as at 31 December 2010 and 2009, respectively. The Bank had total liabilities of TL 5.9billion and TL 2.6 billion and total equity of TL 3.6 billion and TL 3.6 billion at 31 December 2011 and2010. The Bank’s operating profit was TL 337.5 million for the year ended 31 December 2011 (a 4.9% year-on-year increase) and TL 321.6 million for the year ended 31 December 2010 (a 20.42% decrease comparedto TL 404.2 million for the year ended 31 December 2009). The Bank’s net profit was TL 230.3 million forthe year ended 31 December 2011 and TL 256.5 million for the year ended 31 December 2010.

Recent Developments

As at 31 December 2011, the Bank’s long-term foreign currency ratings were Ba1 with a positive outlookfrom Moody’s and BB with a positive outlook from Standard & Poor’s. However, the Bank’s Ba1 foreigncurrency issuer and long-term senior unsecured debt ratings were placed under review on 16 March 2012 fora possible downgrade by Moody’s because of a change in methodology.

Since 31 December 2011, the Bank has entered into the following financing arrangements:

• a one year EUR 125 million syndicated loan in January 2012;

• a EUR 50 million short-term loan from ING Bank N.V. in February 2012; and

• a short-term loan from Doha Bank in the amount of USD 25 million in March 2012.

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Since the beginning of 2012, the Bank has borrowed USD 64.9 million pursuant to the European InvestmentBank SME global loan agreement dated September 24, 2008 in two tranches, in accordance with increasedloan demand.

In the first three months of 2012, the Bank also borrowed USD 42.2 million and EUR 19.1 million from theInternational Bank for Reconstruction and Development within the context of the Export FinanceIntermediation Loan (EFIL-IV), with a final maturity of 1 March 2038.

Additionally, in the first quarter of 2012, the Bank hedged interest rate risks associated with its use ofproceeds from the November 2011 Bond to finance floating rate loans extended under export credit programsthrough five-year, USD 500 million interest rate swap transactions realized with four international banks,under which the Bank receives a fixed rate of 5.375% and pays an average floating rate of LIBOR plus4.02%.

The Bank currently plans to commence operations at a new headquarters in Istanbul in August 2012,following an amendment to its Articles of Association in November 2011 which provided for a relocation ofthe Bank’s headquarters to Istanbul within two years. During the migration period, the Bank’s headquarterswill remain in Ankara.

Significant Factors Affecting Financial Condition and Results of Operations

Several factors have affected the Bank’s results of operations and financial condition in the periods underreview (the years ended 31 December 2011, 2010 and 2009) and may affect the Bank’s results of operationsand financial condition in the future, some of which are outside of the Bank’s control. The followingdiscussion identifies the most significant of such factors.

Turkish Economy

The majority of the Bank’s operations are in Turkey, and its business and results of operations aresignificantly affected by general economic conditions in Turkey, particularly growth in Turkey, foreignexchange rates and the overall level of Turkish exports. As at 31 December 2011, 99.9% of the Bank’s totalassets were in Turkey. Accordingly, the Bank’s results of operations and financial condition have been andwill continue to be significantly affected by Turkish political and economic factors, including the economicgrowth rate, the rate of inflation and fluctuations in exchange and interest rates. See “Risk Factors—Riskfactors relating to the Bank” and “Risk Factors—Risk factors relating to Turkey.”

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The following table sets forth selected economic indicators for Turkey as at and for the years ended 31December 2011, 2010 and 2009.


–––––––––––––––––––––––––––––––2011 2010 2009

––––––––– ––––––––– –––––––––GDP (TL billions)................................................................................................................ 1,294.9 1,105.0 953GDP (USD billions) ............................................................................................................ 772.3 736 616.7GDP growth (%) (real)(1)...................................................................................................... 8.5 8.9 (4.7)GDP per capita (USD) ........................................................................................................ 10,444 9,984.0 8,559.0Unemployment (%) ............................................................................................................ 9.8 11.9 14Central Bank policy rate (period-end, %) .......................................................................... 5.75 6.5 6.5Benchmark yield (period-end, %)(2) .................................................................................... 11.12 7.08 8.9CPI (%) ................................................................................................................................ 10.45 6.4 6.5Exports (USD billions)(3)...................................................................................................... 134.8 113.9 102.1Imports (USD billions) ........................................................................................................ 236.9 185.5 140.9Trade deficit (USD billions) ................................................................................................ 102.1 71.7 38.8Current account deficit (USD billions) .............................................................................. 77 48.6 14Budget deficit (TL billions) ................................................................................................ 17.4 39.6 52.2Nominal appreciation (depreciation) of the Turkish Lira againstthe U.S. Dollar (%)............................................................................................................ (24) (2.7) (2.3)

Real effective exchange rate appreciation (depreciation) (%)(4) .......................................... (9.7) 8.0 0.83

Source: Central Bank and Turkish Statistical Institute.

(1) Real GDP is an inflation-adjusted measure of gross domestic product that reflects the value of all goods and services produced in agiven year, expressed in base-year prices.

(2) The benchmark yield is calculated on the basis of the 15 May 2013 bond pursuant to the decision of the CBRT.

(3) For the year ended 31 December 2011, the Turkish Exporters Assembly reported exports totalling USD 134.5 billion.

(4) Real effective exchange rate is the weighted geometric average of the prices in Turkey relative to the prices of its principal tradepartners in international markets. An increase in the real effective exchange rate represents an appreciation of the TL in real terms,denoting a rise in the value of Turkish commodities in terms of foreign commodities.

As a result of the economic contraction in Turkey in 2009, one of the key drivers of the Bank’s credit demand– global demand for Turkish exports – suffered a contraction as well. As a matter of government policy, theBank’s activities in extending credits and export credit insurance are crucial in efforts to support Turkishexports. Due to the economic contraction and fall in demand for Turkish exports, the Bank recorded adecrease in net profit for 2009 of 7.69% to TL 342.4 million when compared to 2008. For 2010 the Bank’snet profit fell 25.10% to TL 256.5 million, primarily due to the decrease in interest income on loans andadvances to customers resulting from the general decline of interest rates in Turkey. For the year ended 31December 2011, net profit was 10.2% lower at TL 230.3 million compared to the year ended 31 December2010, although the pace of the decline slowed as Turkish exports continued to recover.

The recovery that began in 2010 continued through 2011 and, in connection with the recovery, the levels ofTurkish exports have grown. In addition, the Bank’s loan portfolio increased to TL 8.2 billion as at 31December 2011 as compared to TL 4.2 billion as at 31 December 2010 and TL 3.9 billion as at 31 December2009, due to increasing loan demand. However, growth rates in Turkey are expected to slow in 2012,principally due to external factors including persisting weakness in the eurozone as well as high commodityprices. In 2011, CPI in Turkey increased to 10.45% and the CAD widened to 77.1 billion from 48.5 billionin 2010, and it is expected that growth rates will also be negatively impacted by government measures toreduce inflation and the CAD. See “Risk Factors—Risks relating to Turkey—The level of inflation and thestate of the current account deficit in Turkey could adversely affect the Bank’s business, financial condition,results of operations and prospects.”

Changes in Interest Rates

One of the primary factors affecting the Bank’s profitability is the level of, and fluctuations in, interest ratesin Turkey over time, which in turn (along with volume) influence the interest income generated by the Bank’sassets (primarily loans and advances to customers) and the interest expense associated with its liabilities(primarily funds borrowed to meet foreign currency loan demand).

37

Both the Bank’s funding and loan pricing dynamics are different from commercial banks in Turkey as a resultof Turkish Treasury support and its government mandate. The Bank’s Turkish Lira loans and advances tocustomers are funded by equity from the Turkish Treasury, which has a zero cost compared to typical bankfunding from deposits and borrowings. Accordingly, the Bank seeks to price below market rates of otherTurkish banks (whose rates are set in large part based on market interest rates). The Bank’s foreign currencyloans are funded by the Bank’s borrowings, although the Bank’s foreign currency loans and advances tocustomers tend to be at rates more favorable than those available commercially as well because the Bankdoes not seek to maximize profits, given its government mandate to support exports. On its foreign currency-denominated short-term loan portfolio, the Bank charges fixed rates, determined at the inception of the loan,based on the London interbank offered rate (“LIBOR”), plus a spread, while on its medium-term and long-term loans (six months or longer) the Bank generally charges floating rates based on LIBOR. Consequently,changes in LIBOR, as well as changes in the spreads charged by the Bank for its various foreign currency-denominated lending products, result in changes in the Bank’s interest rates charged on newly originatedshort-term foreign currency loans and outstanding medium-term and long-term foreign currency loans and,thus, in the Bank’s interest income.

Further, as the Bank borrows in foreign currency to fund its foreign currency lending activities, changes inmarket rates affect its interest expense. As described in “—Financial Condition—Liabilities—FundsBorrowed”, the Bank borrows from various Turkish commercial banks and other international financialinstitutions, and, in addition, issues debt securities into the capital markets from time to time.

The following table sets forth the average interest rates of the Bank’s funds borrowed and loans and advancesto customers for the years ended 31 December 2011, 2010 and 2009. See “Selected Statistical and OtherInformation—Average Balance Sheet and Interest Rate Data” for more information.


2011 2010 2009––––––––– ––––––––– –––––––––

Average Interest Rates on:Total interest-bearing liabilities .......................................................................................... 1.25% 1.56% 2.82%Net loans and advances to customers.................................................................................. 4.39% 5.38% 8.57%


As a result of the Bank’s asset and liability mix discussed above, the Bank’s net interest margin and netinterest spread tends to decrease when overall market interest rates decline. At such times, the decrease ininterest rates leads to a general decline in interest income as the Bank reduces its lending rates, while havingonly a limited effect on reducing interest expense due to only a portion of the Bank’s funding (mainly,foreign exchange funding) being borrowed. Hence, a decrease in market interest rates has a disparate impacton the Bank’s assets and liabilities, unlike commercial banks, which would ordinarily benefit from arelatively larger decrease in interest expense (compared to the Bank) alongside a decrease in interest income.Additionally, when interest rates decline in a strong economic environment, commercial banks generallyrecord higher levels of loan volume; however, the Bank’s loan volume is less affected by the economicenvironment, as its interest rates are generally lower than commercial banks’ rates due to its strategic missionto support Turkish exports. As at 31 December 2011, the effect of a hypothetical 1% increase in interest rates,with all other variables held constant, would have been a TL 963 thousand increase in net profit for the yearended 31 December 2011 and the effect of a hypothetical 1% decrease in interest rates, with all othervariables held constant, would have been a TL 988 thousand decrease in net profit for the period. Theseamounts reflect the impact of interest rate changes on monetary assets and liabilities only and include theimpact of derivatives.

38

The following table sets forth the Bank’s net interest income, net interest margin and net interest spread forthe years ended 31 December 2011, 2010 and 2009. For further information, see “Selected Statistical andOther Information—Average Balance Sheet and Interest Rate Data.”


2011 2010 2009––––––––– ––––––––– –––––––––


Net interest income ............................................................................................................ 264,490 288,708 387,247Net interest margin(1)

TL ........................................................................................................................................ 7.38 7.87 12.44Foreign Currency ................................................................................................................ 1.00 1.41 1.22

––––––––– ––––––––– –––––––––Total .................................................................................................................................... 3.96 5.26 7.43

––––––––– ––––––––– –––––––––––––––––– ––––––––– –––––––––Net interest spread(2) ..........................................................................................................TL ........................................................................................................................................ 5.76 7.87 12.44Foreign Currency ................................................................................................................ 1.07 1.07 0.59

––––––––– ––––––––– –––––––––Total(*) .................................................................................................................................. 3.44 4.19 5.59

––––––––– ––––––––– –––––––––––––––––– ––––––––– –––––––––


(*) This table does not include loans funded by the Development and Support Fund, a fund created in 1991 during the crisis in the gulfregion (the “Gulf Crisis”) by the Turkish Treasury to provide support to Turkish contractors who had been conducting business inIraq. The Bank acted as the Turkish Treasury’s agent in disbursing the funds and continues to be the collections agent.

(1) Net interest margin is calculated as the Bank’s net interest income divided by the average balance of the Bank’s total interest-earningassets during the applicable period. Average balances of total interest-earning assets are calculated as the average of monthly balancesduring the applicable period.

(2) Net interest spread is calculated as the difference between the average interest rate on the Bank’s interest-earning assets and theaverage interest rate on the Bank’s interest-bearing liabilities. Interest-earning assets and interest-bearing liabilities are calculated asthe average of monthly balances during the applicable period.

Credit Risk and Provisioning for Impaired Loans

Managing the risk that a counterparty to a financial contract with the Bank will fail to perform according tothe terms and conditions of the contract and cause the Bank to suffer a loss, or “credit risk”, is a key aspectof the Bank’s financing and investment activities. See “Risk Management—Credit Risk” for furtherinformation.

The Bank reviews its loan portfolios to assess impairment on a quarterly basis and, while it is not requiredto comply with BRSA loan impairment requirements, it voluntarily follows the requirements in all respects.In accordance with BRSA requirements, in the Statutory Financial Statements, the Bank sets aside a generalloan provision of 1% of the cash loan portfolio plus 0.2% of the non-cash loan portfolio (such as letters ofguarantee, acceptance credits, letters of credit undertakings and endorsements).

For information on the Bank’s loan provision policies, see Note 8 and Note 3 in each of the IFRS FinancialStatements set forth elsewhere in this Offering Memorandum.

Additionally, in determining whether an impairment loss should be recorded in the income statement, theBank makes judgments as to whether there is any observable data indicating that there is a measurabledecrease in the estimated future cash flows from a portfolio of loans before the decrease can be identifiedwith an individual loan in that portfolio. The Bank provides a 100% impairment provision for non-performing loans (loans more than 90 days overdue) and other receivables without taking into account therelevant collateral. For loans that are less than 90 days overdue, the Bank provides an impairment provisionof up to 100%, on a case-by-case basis. In the case of impaired loans that are covered by commercial bankguarantees, the impairment charges are reversed when the Bank collects on the guarantee. Provisions forimpaired loans typically fluctuate with changing economic conditions, increasing by 145.9% in 2009compared to 2008 as overall economic conditions worsened and decreasing 62.9% in 2010 compared to 2009as conditions improved. However, the Bank’s impairment charges have been affected by a few largeexposures, which have significantly impacted its results. For the year ended 31 December 2011, provisionsfor impaired loans decreased by 4.9% to TL 114.8 million compared to 31 December 2010, primarily due to

39

collections from a textile company of TL 5.9 million. As at 31 December 2011, 2010 and 2009, impairedloans amounted to TL 114.8 million, TL 120.8 million and TL 103.5 million, respectively. The proportion ofthe Bank’s impaired loans to gross loans was 1.4% as at 31 December 2011, compared to 2.8% as at 31December 2010 and 2.6% as at 31 December 2009.

For further information on the Bank’s loan provision policies, see Note 8 and Note 3 in each of the IFRSFinancial Statements set forth elsewhere in this Offering Memorandum.

Exchange Rate Fluctuations

A significant percentage of the Bank’s assets and liabilities are denominated in foreign currencies,particularly in USD and EUR. As a result, increases or decreases in the Turkish Lira versus the Euro and theU.S. Dollar can impact the Bank’s results of operations and financial condition, subject to the Bank’s foreignexchange strategy.

At 31 December 2011, the Bank had USD and EUR denominated assets of USD 4.4 billion and EUR 1.3billion, respectively, of which loans and advances to customers constituted USD 4.2 billion or 96.1% andEUR 1.2 billion or 91.4% of the respective USD and EUR denominated total assets. At 31 December 2011,USD and EUR denominated total liabilities were USD 4.0 billion and EUR 1.6 billion, respectively. Fundsborrowed constituted USD 3.0 billion or 75.0% and EUR 1.6 billion or 99.6% of the respective USD andEUR denominated total liabilities. For further information on foreign currency denominated assets andliabilities, see Note 3 in each of the IFRS Financial Statements included elsewhere in this OfferingMemorandum. See “Exchange Rates” for more information on foreign exchange rates.

Transactions denominated in foreign currencies are accounted for at the exchange rates prevailing at the dateof the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions andfrom the translation at period-end exchange rates of monetary assets and liabilities denominated in foreigncurrencies are recognized in the income statement under foreign exchange gains/(losses), net.

For the years ended 31 December 2011 and 2010, the Bank recorded net foreign exchange gains of TL 162.5million and TL 23.9 million, respectively, primarily due to the Turkish Lira’s depreciation against the U.S.Dollar. For the year ended 31 December 2009, the Bank recorded a net foreign exchange loss of TL 23.4million primarily as a result of Turkish Lira appreciation against the U.S. Dollar due to short term capitalinflows to Turkey following monetary policy easing by the CBRT. Management believes that net foreignexchange gains/(losses) and net trading gains/(losses) (which consist of gain/(losses) on the trading portfolioand the mark to market on currency and interest rate derivatives) should be considered together becausetrading activities are used only for hedging purposes and not for speculative purposes. On that basis, theBank’s strategy is to maintain a square position, i.e., no significant open positions. The Bank has recordedaggregate net gains for each of the years ended 31 December 2011, 2010 and 2009, taking into account bothnet foreign exchange gains/(losses) and net trading gains/(losses).

As part of its strategy to manage the impact of exchange rates and to hedge against foreign exchangeexposure, the Bank enters into swap transactions and increased its hedging activities in 2011. Short-termcurrency swap transactions, carried out during the year to meet exporters’ foreign exchange loan demand andto manage the Bank’s foreign currency risk, reached a total volume of USD 6.7 billion throughout 2011. Asat 31 December 2011, there were swap transactions involving long-term interest rate swaps with notionalamounts of USD 21 million, as well as short-term currency swaps for liquidity and currency risk purposeswith notional amounts of EUR 135 million, JPY 272 million and TL 328 million. Also, there wereUSD 21 million in interest rate swap sale transactions and USD 357 million in foreign currency swap saletransactions as at 31 December 2011. Additionally, in 2011 forward purchase-sale transactions were initiatedin order to finance the rediscount credits made available by the Turkish Central Bank and to hedge againstforeign exchange rate risk. The balance of these transactions as at 31 December 2011 was USD 212 millionand TL 126 million in forward purchase transactions, and USD 67 million and TL 397 million in forwardsales transactions.

40

Securities Portfolio

The Bank maintains a securities portfolio which primarily consists of held-to-maturity securities and tradingsecurities, consisting of Turkish government bonds, including bonds and treasury bills denominated in TLand eurobonds denominated in foreign currency. The Bank maintains this securities portfolio to provideliquidity, if necessary, including through repo transactions. The Bank’s basic strategy is to keepapproximately 50% of its securities portfolio in held-to-maturity securities in order to mitigate the exposureof the income statement to price fluctuations in the portfolio. See “—Financial Condition—Assets—Securities Portfolio” for further information. The Bank’s securities portfolio amounted to TL 865.7 millionas at 31 December 2011; of this amount, TL 511.4 million, or 59.1% was classified as held-to-maturity andTL 342.9 million, or 39.6%, was classified as trading. The Bank also had available-for-sale securitiesamounting to TL 11.3 million as at 31 December 2011. Interest income derived from the Bank’s trading andinvestment securities amounted to TL 57.5 million for the year ended 31 December 2011, accounting for18.3% of total interest income for the period, and amounted to TL 59.3 million for the year ended 31December 2010, constituting 18.8% of the total interest income for such period and TL 37.2 million for theyear ended 31 December 2009, constituting 8.5% of the total interest income for such period. The Bank grewits securities portfolio between 2008 and 2010, from 5.9% of the Bank’s total assets as at 31 December 2008to 19.5% as at 31 December 2010, due to a decrease in demand for export credit during the global financialcrisis. In 2011, the securities portfolio decreased to 9.0% of total assets as at 31 December 2011, as creditdemand recovered in Turkey and demand for Turkish exports increased in global markets.

Critical Accounting Estimates and Judgments in Applying Accounting Policies

The Bank makes estimates and assumptions that affect the results of operations and financial conditionpresented in its IFRS Financial Statements and the notes thereto. Estimates and judgments are continuallyevaluated and are based on historical experience and other factors, including expectations of future eventsthat are believed to be reasonable under the circumstances.

Impairment losses on loans and advances to customers

The Bank reviews its loan portfolio quarterly to assess impairment. The assessment includes the estimationof future cash flows. Management uses estimates based on historical loss experience for assets with creditrisk characteristics and objective evidence of impairment similar to those in the portfolio when schedulingits future cash flows.

Fair value of derivatives

The fair values of financial instruments that are not quoted in active markets are determined by usingvaluation techniques. Where valuation techniques (for example, models) are used to determine fair values,they are validated and periodically reviewed by qualified personnel independent of the area that createdthem.

41

Analysis of Results of Operations for the Years Ended 31 December 2011, 2010 and 2009

The table below sets forth the Bank’s income statement data for the years ended 31 December 2011, 2010and 2009.


2011 2010 2009––––––––– ––––––––– –––––––––






––––––––– ––––––––– –––––––––Impairment charges on loans, net........................................................................................ (18,413) (19,389) (52,339)Foreign exchange gains/(losses), net .................................................................................. 162,498 23,875 (23,377)Gains/(losses) on financial instruments classified as held fortrading, net ........................................................................................................................ (124,230) (4,883) 63,911

Other operating income ...................................................................................................... 53,403 42,466 35,007––––––––– ––––––––– –––––––––

Operating profit ................................................................................................................ 337,533 321,641 404,154Operating expenses.............................................................................................................. (107,255) (65,171) (61,713)


––––––––– ––––––––– –––––––––Other comprehensive income:Change in fair value gains/(losses) on available-for-salefinancial assets:.................................................................................................................. (4,907) 1,458 8,618

Amortization of the fair value gains/(losses) of held-to-maturityinvestments previously classified as available-for-salefinancial assets .................................................................................................................. (45) (101) (114)


––––––––– ––––––––– –––––––––––––––––– ––––––––– –––––––––

42

Results of operations for the years ended 31 December 2011 and 2010

Net Interest Income

The table below sets forth the components of the Bank’s net interest income for the years ended 31 December2011 and 2010.

Year ended31 December

––––––––––––––––––––Change Change in

2011 2010 % Amount––––––––– ––––––––– ––––––––– –––––––––

(in thousands of TL, except percentages)

Interest income on:Interest on loans and advances to customers .......................................... 231,230 171,921 34 59,309Interest on interbank money market placements .................................... 1,847 71,432 (97) (69,585)Interest on investment and trading securities .......................................... 57,493 59,300 (3) (1,807)Interest on deposits with banks .............................................................. 22,052 12,814 72 9,238Other interest income .............................................................................. 737 286 158 451

––––––––– ––––––––– ––––––––– –––––––––Total interest income ............................................................................ 313,359 315,753 (1) (2,394)

––––––––– ––––––––– ––––––––– –––––––––––––––––– ––––––––– ––––––––– –––––––––Interest expense on:Interest on funds borrowed .................................................................... (36,299) (26,997) 34 9,302Interest on debt securities in issue .......................................................... (8,248) – – 8,248Interest expense on money market transactions...................................... (4,308) – – 4,308Other interest expenses .......................................................................... (14) (48) (71) (34)

––––––––– ––––––––– ––––––––– –––––––––Total interest expense ............................................................................ (48,869) (27,045) 81 21,824

––––––––– ––––––––– ––––––––– –––––––––––––––––– ––––––––– ––––––––– –––––––––Net interest income................................................................................ 264,490 288,708 (8) (24,218)

Net interest income is the Bank’s primary source of income. The Bank’s net interest income decreased to TL264.5 million in the year ended 31 December 2011 from TL 288.7 million in the year ended 31 December2010, an 8.4% decrease. This decrease was primarily due to increased interest expense as well as a slightdecrease in interest income. The Bank’s net interest margin in the year ended 31 December 2011 was 3.96%,as compared to 5.26% in the year ended 31 December 2010, while its net interest spread was 3.44% in theyear ended 31 December 2011, compared to 4.19% in the year ended 31 December 2010. The changes ininterest income and interest expense are discussed below.

Interest Income

The Bank’s interest income during 2011 was primarily derived from interest on loans and advances tocustomers. For the year ended 31 December 2011, interest income from loans and advances to customerstotaled TL 231.2 million and constituted 73.8% of total interest income, compared to 54.4% in the yearended 31 December 2010, due to heightened demand for the Bank’s credit programs following an increasein reserve requirements for commercial banks.

The Bank’s interest income decreased to TL 313.4 million in the year ended 31 December 2011 from TL315.7 million in the year ended 31 December 2010, a 0.76% decrease. This slight decrease was the result ofchanges to the Bank’s loan mix and decreases in interest margin as TL interest rates fell, more than offsettingthe increase in loan volumes stemming from increased loan demand.

The Bank’s average yield on total interest-earning assets decreased to 4.70% in the year ended 31 December2011 from 5.75% for the year ended 31 December 2010, mainly due to changes in the TL/FX mix of theBank’s loan portfolio with the share of lower-yield FX loans increasing, slight decreases inLIBOR/EURIBOR rates and a decrease in TL and FX lending rates. The Bank’s loan portfolio (typicallyplaced at below-market rates as a result of the Bank’s strategic mission to support Turkish exports) had alower yield than commercial lending rates. In general, foreign currency loans are typically priced at levelsdesigned to cover the Bank’s cost of funding, whereas TL loans are generally priced below Turkishcommercial bank rates. This decrease was partially mitigated by the increase in interest income on loans andadvances to customers, as the increase in loan volume (described below) more than offset the decrease inaverage interest rates on loans and advances to customers to 4.39% in the year ended 31 December 2011

43

from 5.38% in the year ended 31 December 2010. There was a decrease in average interest rates oninvestment and trading securities from 8.36% to 6.54% over the same period, primarily due to the redemptionof some securities with higher interest rates in the Bank’s security portfolio and the capital loss stemmingfrom securities bought in early 2011 in the midst of the slightly rising interest rate environment. The Bank’saverage balance of loans and advances to customers increased to TL 5,268 million for the year ended 31December 2011 from TL 3,196 million for the year ended 31 December 2010 (a 64.8% increase), and theBank’s average balance of investment and trading securities increased to TL 879 million from TL 709 millionduring the same period (a 23.9% increase).

Interest Expense

Substantially all of the Bank’s interest expense is related to funds borrowed and debt securities (as the Bankis not a deposit-taking institution) and is driven by interest rates and the volume and mix of borrowings.

The Bank’s interest expense increased by 80.7% to TL 48.9 million in the year ended 31 December 2011from TL 27.0 million in the year ended 31 December 2010. This increase was primarily due to the increasein interest expense on borrowings, primarily as a result of an increase in funds borrowed (includingadditional loans) and the November 2011 Bond issuance. This increase in interest expense on interest-bearing liabilities was mitigated by a decrease in the costs on funds borrowed to 1.36% in the year ended 31December 2011 from 1.56% in the year ended 31 December 2010, primarily due to the Central Bank ofTurkey re-discounting facility, which provides the Bank with low-interest rate funding at LIBOR forprovision of short-term export lending. Also in the year ended 2011, the Bank incurred additional interestexpenses in the amount of TL 8.2 million and TL 4.3 million for interest on the November 2011 Bond andinterest expense on funds provided under repurchase agreements, respectively.

Net Fee and Commission Expense

The Bank generates its fee and commission income primarily from its Country Credit Program. See“Business—Banking Activities—Medium- and Long-term Export Credits—Country Credit and GuaranteeProgram.” Fee and commission expenses are primarily a result of the fees paid under the Bank’s bilateraland club loans. The Bank recorded net fee and commission expense of TL 215 thousand in the year ended31 December 2011, compared to net fee and commission expense of TL 9.1 million in the year ended 31December 2010. While fees and commissions have historically been a net expense for the Bank as a resultof its borrowing activity, for 2011 the Bank recorded a sharp increase in fee and commission incomeprimarily due to commissions from the Country Credit and Guarantee program.

Net Impairment Charges on Loans

The Bank’s net impairment charges on loans decreased 5.0% to TL 18.4 million in the year ended 31December 2011 from TL 19.4 million in the year ended 31 December 2010, principally due to the recoveryin 2011 of a large loan made to a Turkish textile company and the improved credit quality of the Bank's loanportfolio due to better collateralization. The Bank maintains a 100% impairment provision for non-performing loans (gross of collateral), which amounted to TL 114,853 thousand and accounted for 1.40% ofthe total loans outstanding at 31 December 2011. This compares to an impairment provision for non-performing loans amounting to TL 120,776 thousand and accounting for 2.82% of the total loans outstandingat 31 December 2010. Once collateral is collected on an impaired loan, the impairment is reversed. Since2009, the Bank has required 100% collateral on all short-term lending and the Bank expects the ratio of non-performing loans to total loans to continue to decrease. At 31 December 2011, the Bank also provided anadditional impairment provision amounting to TL 68,405 thousand, compared to TL 52,863 thousand at 31December 2010, for other components of the loan portfolio to cover the incurred loss present in the lendingrelationship but not yet identified with a specific loan.

Net Foreign Exchange Gains

As a general matter, the Bank attempts to maintain a square position in foreign exchange through its on-balance sheet and off-balance sheet activities. Foreign exchange gains and losses are a result of the

44

settlement of transactions denominated in foreign currencies, accounted for at the exchange rates prevailingat the date of the transactions and from the translation at year-end exchange rates of monetary assets andliabilities denominated in foreign currencies. Derivative transactions (while providing effective economichedges under the Bank’s risk management position) do not qualify for hedge accounting under the specificrules of the Turkish Accounting Standard for Recognition and Measurement of Financial Instruments and areconsequently treated as derivatives held-for-trading (mark to market on derivatives is accounted for in tradinggains/(losses)). As a result, the Bank believes that because these derivative transactions are intended as ahedge, it is instructive to review foreign exchange gains/(losses) and trading gains/(losses), discussed below,together. The Bank’s net foreign exchange gains increased to TL 162.5 million in the year ended 31December 2011 from TL 23.9 million in the year ended 31 December 2010, a 580.6% increase. This increasewas primarily due to the depreciation of the Turkish Lira against the U.S Dollar. As at 31 December 2011,the Bank had an on-balance sheet long position in U.S. Dollars of TL 388.6 million (and short positions inEUR and TL) coupled with an off-balance sheet short derivative position in U.S. Dollars of TL 404.8 million(and long EUR and TL positions), resulting in a nearly neutral position in U.S. Dollars.

Net Trading Losses

The Bank’s net trading gains/(losses) (which consist of gains/(losses) on the trading portfolio and the markto market on currency and interest rate derivatives) increased to TL 124.2 million in the year ended31 December 2011 from TL 4.9 million in the year ended 31 December 2010, a 2,444% increase. Thisincrease was primarily due to foreign exchange derivative transactions intended to hedge foreign currencyexposure. Accordingly, as discussed above under “—Significant Factors Affecting Financial Condition andResults of Operations,” the net impact of foreign exchange gains and trading losses resulted in a foreignexchange profit of TL 38.2 million for 2011 and a foreign exchange profit of TL 18.9 million for 2010.

Other Operating Income

Other operating income consists of insurance premium income and income stemming from non-performingloans recoveries. The Bank’s other operating income increased to TL 53.4 million in the year ended 31December 2011 from TL 42.5 million in the year ended 31 December 2010, a 25.8% increase. This increasewas primarily due to recovery of a non-performing loan in the textile industry in 2011 and a rise in insurancepremium income and commissions from reinsurance companies in 2011.

45

Operating Expenses

The following table sets forth the components of the Bank’s operating expenses for the years ended 31December 2011 and 2010.


––––––––––––––––––––Change Change in

2011 2010 % Amount––––––––– ––––––––– ––––––––– –––––––––


Bonus provision expense ........................................................................ 30,000 — 100.00 30,000Staff costs ................................................................................................ 25,668 23,374 9.8 2,294Premiums paid to reinsurance companies .............................................. 23,465 18,517 26.7 4,948Employment termination benefits and unusedvacation provision expense .................................................................. 3,339 2,076 60.8 1,263

Small and Medium Industries DevelopmentOrganization (“KOSGEB”) fee ............................................................ 4,699 5,229 (10.1) (530)

BRSA contribution expense .................................................................... 2,415 1,887 27.9 528Research expenses .................................................................................. 2,786 2,065 34.9 721Taxes and duties expenses ...................................................................... 1,026 982 4.5 44Depreciation and amortization charges .................................................. 1,027 676 51.9 351Vehicle expenses .................................................................................... 972 1,465 (33.7) (493)Other........................................................................................................ 11,858 8,900 33.2 2,958

––––––––– ––––––––– ––––––––– –––––––––107,255 65,171 64.6 42,084

––––––––– ––––––––– ––––––––– –––––––––––––––––– ––––––––– ––––––––– –––––––––

The Bank’s operating expenses increased to TL 107.3 million in the year ended 31 December 2011 from TL65.2 million in the year ended 31 December 2010. This increase was mainly due to the provision for bonusexpenses relating to unpaid bonuses in the second half of 2008 and the years 2009, 2010 and 2011 in theamount of TL 30 million. Other factors contributing to the increase were an increase in premiums paid toreinsurance companies for commercial risk reinsurance stemming from an increase in insurance activitiesand an increase in staff costs (mainly as a result of inflation and a 10% increase in the number of employeesas at 31 December 2011 compared to 31 December 2010), as well as an increase in other costs, includingoperating expenses and claims paid within the context of reinsurance activities. This increase was partiallyoffset by a decrease in KOSGEB fee as well as a decrease in vehicle expenses.

As more than 50% of the Bank’s paid-in share capital is owned by government entities, the Bank is obligedto pay an annual fee of 2% of the corporate tax base of the Bank to KOSGEB in accordance with applicableregulations.

Net Profit

As a result of the foregoing factors, the Bank’s net profit decreased by 10.2%, or TL 26.2 million, to TL230.3 million in the year ended 31 December 2011 from TL 256.5 million in the year ended 31 December2010. Pursuant to Act no. 3332 and Article 4/b of Act no. 3659, dated 25 March 1987 and 26 September1990, respectively, the Bank is exempt from corporate tax.

46

Results of operations for the years ended 31 December 2010 and 2009

Net Interest Income

The following table sets forth the components of the Bank’s net interest income for the years ended 31December 2010 and 2009, respectively.


––––––––––––––––––––Change Change in

2010 2009 % Amount––––––––– ––––––––– ––––––––– –––––––––


Interest Income:Interest on loans and advances to customers .......................................... 171,921 323,090 (46.79) (151,169)Interest on deposits at banks .................................................................. 12,814 9,731 31.68 3,083Interest on interbank money market placements .................................... 71,432 67,439 5.92 3,993Interest on investment and trading securities .......................................... 59,300 37,173 59.52 22,127Other interest income .............................................................................. 286 539 (46.94) (253)

––––––––– ––––––––– ––––––––– –––––––––Total interest income ............................................................................ 315,753 437,972 (27.91) (122,219)

––––––––– ––––––––– ––––––––– –––––––––Interest expense:Interest on funds borrowed .................................................................... (26,997) (50,617) (46.66) 23,620Other interest expenses .......................................................................... (48) (108) (55.56) 60Total interest expense ............................................................................ (27,045) (50,725) (46.68) 23,680

––––––––– ––––––––– ––––––––– –––––––––Net interest income................................................................................ 288,708 387,247 (25.45) (98,539)

––––––––– ––––––––– ––––––––– –––––––––––––––––– ––––––––– ––––––––– –––––––––

The Bank’s net interest income decreased to TL 288.7 million in the year ended 31 December 2010 from TL387.2 million in the year ended 31 December 2009, a 25.45% decrease. This decrease was primarily due tothe reduction in interest income, partially offset by the decrease in interest expense. The Bank’s net interestmargin in the year ended 31 December 2010 was 5.26% as compared to 7.43% in the year ended 31December 2009. The changes in interest income and interest expense are discussed below.

Interest Income

The Bank’s interest income during the period was primarily derived from interest income on loans andadvances to customers and interest on interbank money market placements. For the year ended 31 December2010, interest income from loans and advances to customers totaled TL 171.9 million and constituted54.44% of total interest income and interest income from interbank money market placements totaled TL71.4 million and constituted 22.6% of total interest income, compared to 73.8% and 15.4%, respectively, inthe year ended 31 December 2009.

The Bank’s interest income decreased to TL 315.7 million in the year ended 31 December 2010 from TL438.0 million in the year ended 31 December 2009, a 27.92% decrease. This decrease was primarily due tothe decrease in interest income on loans and advances to customers and was partially offset by an increasein interest income on investment and trading securities, interbank money market placements and deposits atbanks. The overall decrease in interest income was primarily due to the decrease in average interest rates onloans and advances to customers to 5.38% in the year ended 31 December 2010 from 8.57% in the yearended 31 December 2009 and the decrease in the Bank’s average balance of loans and advances to customersby 15.23% to TL 3,196 million from TL 3,770 million during the same period, as the recovery in globaleconomic conditions prompted Turkish commercial banks to significantly increase lending operationscausing downward pressure on both the Bank’s rates and volumes. The Bank’s average yield on interestearning assets followed a similar pattern, decreasing to 5.75% in the year ended 31 December 2010 from8.41% in the year ended 31 December 2009.

Interest Expense

The Bank’s interest expense decreased to TL 27.0 million in the year ended 31 December 2010 from TL 50.7million in the year ended 31 December 2009, a 46.68% decrease. This decrease was primarily due to the

47

decrease in interest expense on funds borrowed, which was a result of the decrease in the average interestrate of funds borrowed to 1.56% in the year ended 31 December 2010 from 2.82% in the year ended 31December 2009 (as EURIBOR dropped significantly and risk perception of Turkish banks improved), incombination with the slight decrease in the average balance of funds borrowed to TL 1.7 million from TL1.8 million due to the decrease in loan demand.

Net Fee and Commission Expense

The Bank’s net fee and commission expense increased 45.13% to TL 9.1 million in the year ended 31December 2010 from TL 6.3 million in the year ended 31 December 2009. This increase was primarily dueto the increase in fees related to bilateral and club loans (in 2009, the Bank delayed rolling over bilateral andclub loans due to the volatile global market conditions) and the decrease in fees and commission from theCountry Credit and Guarantee Program.

Net Impairment Charges on Loans and Credit Related Commitments

The Bank’s net impairment charges on loans and credit related commitments decreased to TL 19.3 millionin the year ended 31 December 2010 from TL 52.3 million in the year ended 31 December 2009, a 63.10%decrease. This decrease was primarily due to the decrease in non-payment of loans as economic conditionsbecame less severe compared with 2009. The Bank provides 100% impairment provision for non-performingloans (without taking into account any collateral) which amounted to TL 120,776 thousand and accountedfor 2.82% of the total loans outstanding at 31 December 2010. This compares to an impairment provision fornon-performing loans amounting to TL 103,498 thousand and accounting for 2.58% of the total loansoutstanding at 31 December 2009. At 31 December 2010, the Bank also provided an additional impairmentprovision amounting to TL 52,863 thousand for other components of the loan portfolio to cover the incurredloss present in the lending relationship but not yet identified with a specific loan, compared to an additionalimpairment provision of TL 54,240 thousand at 31 December 2009.

Net Foreign Exchange Gains

The Bank recorded net foreign exchange gains of TL 23.9 million in the year ended 31 December 2010,compared to a net foreign exchange loss of TL 23.4 million in the year ended 31 December 2009. Thischange was primarily due to a significant on-balance sheet long position in U.S. Dollars due to conversionof TL liquidity for repayment of loans in the ordinary course and depreciation of the TL/USD exchange ratedue to exchange rate fluctuations.

Net trading gains/(losses)

The Bank recorded net trading losses of TL 4.9 million in the year ended 31 December 2010 compared tonet trading gains of TL 63.9 million in the year ended 31 December 2009. This change was primarily due toforeign exchange derivative transactions intended to hedge foreign currency exposure in U.S. Dollars andEuros. Accordingly, as discussed above under “—Significant Factors Affecting Financial Condition andResults of Operations,” the aggregate impact of foreign exchange gains and trading losses resulted in a gainfor the period.

48

Other Operating Income

The following table sets forth the components of the Bank’s other operating income for the years ended 31December 2010 and 2009, respectively.


––––––––––––––––––––Change Change in

2010 2009 % Amount––––––––– ––––––––– ––––––––– –––––––––


Insurance premium income .................................................................... 28,219 23,783 18.65 4,436Commission from reinsurance companies .............................................. 7,598 5,962 27.44 1,636Recoveries from non-performing loans .................................................. 3,488 1,593 118.96 1,895Other........................................................................................................ 3,161 3,669 (13.85) (508)

––––––––– ––––––––– ––––––––– –––––––––Total ........................................................................................................ 42,466 35,007 21.31 7,459

––––––––– ––––––––– ––––––––– –––––––––––––––––– ––––––––– ––––––––– –––––––––

The Bank’s other operating income increased to TL 42.5 million in the year ended 31 December 2010 fromTL 35 million in the year ended 31 December 2009. This increase was primarily due to the increase ininsurance premium income, which resulted from increasing volumes in export credit insurance andcommission from reinsurance companies, which is the end-of-year commission returned to the Bank thatreflects the profitability of the risk reinsured with respect to the preceding year. This increase was partiallyoffset by the decrease of other income components.

Operating Expenses

The following table sets forth the components of the Bank’s operating expenses for the years ended 31December 2010 and 2009.


––––––––––––––––––––Change Change in

2010 2009 % Amount––––––––– ––––––––– ––––––––– –––––––––


Staff costs ................................................................................................ 23,374 20,777 12.5 2,597Premiums paid to reinsurance companies undercommercial risk .................................................................................... 14,915 11,893 25.41 3,022

KOSGEB fee .......................................................................................... 5,229 6,990 (25.19) (1,761)Premiums paid to reinsurance companies underpolitical risk .......................................................................................... 3,602 2,796 28.83 806

Research expenses .................................................................................. 2,065 2,410 (14.32) (345)Employment termination benefits and unusedvacation provision expense .................................................................. 2,076 2,130 (2.54) (54)

BRSA contribution expense .................................................................... 1,887 1,946 (3.03) (59)Taxes and duties expenses ...................................................................... 1,465 1,132 29.42 333Vehicle expenses .................................................................................... 982 919 6.86 63Communication and utility expenses ...................................................... 856 851 0.59 5Depreciation and amortization charges .................................................. 676 847 (20.19) (171)Rental expenses ...................................................................................... 838 796 5.28 42Computer usage expenses ...................................................................... 301 301 0 0Repair and maintenance expenses .......................................................... 95 112 (15.18) (17)Other........................................................................................................ 6,810 7,813 (12.84) (1,003)

––––––––– ––––––––– ––––––––– –––––––––Total ........................................................................................................ 65,171 61,713 5.6 3,458

––––––––– ––––––––– ––––––––– –––––––––––––––––– ––––––––– ––––––––– –––––––––

The Bank’s operating expenses increased to TL 65.2 million in the year ended 31 December 2010 from TL61.7 million in the year ended 31 December 2009. This increase was primarily due to increases in premiumspaid to reinsurance companies as a result of increased transaction volume of short-term insurance and staffcosts (mainly as a result of general inflation in Turkey). This increase was partially offset by the decrease inthe KOSGEB fee and other expenses.

49

Net Profit

As a result of the foregoing factors, the Bank’s net profit decreased by 25.1%, or TL 85.9 million, to TL256.5 million in the year ended 31 December 2010 from TL 342.4 million in the year ended 31 December2009.

Financial Condition

The table below sets out balance sheet data for the Bank as at 31 December 2011, 2010 and 2009.

As at 31 December–––––––––––––––––––––––––––––––

2011 2010 2009––––––––– ––––––––– –––––––––


ASSETSCash and due from banks .................................................................................................... 667,369 886,771 2,059,197Trading securities ................................................................................................................ 342,935 308,488 150,149Derivative financial instruments .......................................................................................... 15,895 1,885 16,548Loans and advances to customers ...................................................................................... 7,997,214 4,106,275 3,854,426Investment securities

Available-for-sale ............................................................................................................ 11,295 15,202 13,744Held-to-maturity .............................................................................................................. 511,436 891,703 309,068


––––––––– ––––––––– –––––––––Total assets.......................................................................................................................... 9,583,144 6,229,566 6,427,109



––––––––– ––––––––– –––––––––––––––––– ––––––––– –––––––––EQUITYShare capital ........................................................................................................................ 2,000,000 2,000,000 2,000,000Adjustment to share capital ................................................................................................ 812,518 812,518 812,518Total paid in share capital.................................................................................................... 2,812,518 2,812,518 2,812,518Other reserves ...................................................................................................................... 3,630 8,582 7,225Retained earnings ................................................................................................................ 831,912 809,042 837,460

––––––––– ––––––––– –––––––––Total equity ........................................................................................................................ 3,648,060 3,630,142 3,657,203

––––––––– ––––––––– –––––––––Total liabilities and equity ................................................................................................ 9,583,144 6,229,566 6,427,109

––––––––– ––––––––– –––––––––––––––––– ––––––––– –––––––––

Assets

As at 31 December 2011, the Bank’s total assets amounted to TL 9,583.1 million, an increase of 53.8% fromTL 6,229.6 million as at 31 December 2010, as loans and advances to customers continued to increase dueto the recovery in Turkish exports. Assets decreased at 31 December 2010 by 3.07% from TL 6,427.1 millionas at December 31, 2009, as cash and due from banks sharply decreased alongside a reduction in fundsborrowed. The following describes the Bank’s loans and advances to customers and investment securities,which jointly represented 88.9% of the Bank’s total assets as at 31 December 2011, 80.5% as at 31 December2010 and 65.0% as at 31 December 2009.

Loans and Advances to Customers

Loans and advances to customers represented 83.5% of the Bank’s total assets as at 31 December 2011,65.9% as at 31 December 2010 and 59.9% as at 31 December 2009. As at 31 December 2011, the Bank’sloans and advances to customers amounted to TL 7,997.2 million, an increase of 94.8% from TL 4,106.3

50

million as at 31 December 2010, due to increased loan demand as global economic conditions improved andTurkish exports recovered. Loans and advances to customers increased at 31 December 2010 by 6.5% dueto improving economic conditions globally and in Turkey from TL 3,854.4 million as at December 31, 2009.

The following table sets forth the Bank’s loans and advances to customers as at 31 December 2011, 2010and 2009:

As at 31 December–––––––––––––––––––––––––––––––

2011 2010 2009––––––––– ––––––––– –––––––––


Short-termFinancial institutions............................................................................................................ 2,739,251 1,723,748 1,812,309Export guaranteed loans ...................................................................................................... 527,065 394,108 469,616Fund sourced loans .............................................................................................................. 17,922 640,937 600,615Foreign country loans .......................................................................................................... – – 14,718Specific loans ...................................................................................................................... 64,424 9,870 29,018Re-discount loans ................................................................................................................ 3,113,343 687,310 602,312Other guaranteed loans ........................................................................................................ 18,690 40,712 56,360

––––––––– ––––––––– –––––––––Total .................................................................................................................................... 6,480,695 3,496,685 3,584,948

––––––––– ––––––––– –––––––––––––––––– ––––––––– –––––––––Medium and long-termFinancial institutions............................................................................................................ 753,178 263,340 35,169Export guaranteed loans ...................................................................................................... 417,730 211,300 108,587Foreign country loans .......................................................................................................... 138,681 71,342 72,482Specific loans ...................................................................................................................... 19,012 6,159 3,681Export guaranteed investment loans.................................................................................... 10,550 11,222 12,876Funds sourced loans ............................................................................................................ 3,630 – –Other .................................................................................................................................... 156,854 94,576 86,763

––––––––– ––––––––– –––––––––Total .................................................................................................................................... 1,499,635 657,939 319,558

––––––––– ––––––––– –––––––––––––––––– ––––––––– –––––––––Performing loans ................................................................................................................ 7,980,330 4,154,624 3,904,506Loans under close monitoring ............................................................................................ 85,289 4,514 4,160Impaired loans and advances .............................................................................................. 114,853 120,776 103,498

––––––––– ––––––––– –––––––––Gross loans and advances to customers .......................................................................... 8,180,472 4,279,914 4,012,164Allowance for loan losses.................................................................................................... (183,258) (173,639) (157,738)

––––––––– ––––––––– –––––––––Net loans and advances to customers .............................................................................. 7,997,214 4,106,275 3,854,426

––––––––– ––––––––– –––––––––––––––––– ––––––––– –––––––––

51

The following table sets forth the Bank’s gross loans and advances to the public and private sector as at 31December 2011, 2010 and 2009:

As at 31 December–––––––––––––––––––––––––––––––

2011 2010 2009––––––––– ––––––––– –––––––––


Public sector ........................................................................................................................ 832,133 374,549 366,687Private sector ...................................................................................................................... 7,348,339 3,905,365 3,645,477

––––––––– ––––––––– –––––––––Total .................................................................................................................................... 8,180,472 4,279,914 4,012,164

––––––––– ––––––––– –––––––––––––––––– ––––––––– –––––––––

As at 31 December 2011, the Bank’s impaired loans decreased by 4.9% to TL 114.9 million, as compared to31 December 2010, principally due to the recovery in 2011 of a large loan made to a Turkish textile company.As at 31 December 2010, impaired loans increased by 16.79% to TL 120.8 million, as compared to 31December 2009, due to the impairment of loans granted to two companies in the textile sector (which wereTL 14.5 million in total).

The proportion of the Bank’s impaired loans to gross loans was 1.4% as at 31 December 2011, compared to2.9% as at 31 December 2010 and 2.6% as at 31 December 2009.

For additional information on the Bank’s loan portfolio, including its non-performing loans and relatedprovisions, see Note 8 to each of the IFRS Financial Statements provided elsewhere in this OfferingMemorandum and “Selected Statistical and Other Information—Loan Portfolio.”

Cash and due from banks

Cash and due from banks represented 7.0% of the Bank’s total assets as at 31 December 2011, 14.2% as at31 December 2010 and 32% as at 31 December 2009. As at 31 December 2011, cash and due from banksamounted to TL 667.4 million, a decrease of 24.7% from TL 886.8 million as at 31 December 2010, whichdecrease reflects increases in loans arising out of increased exports from Turkey. Cash and due from banksdecreased by 56.93% at 31 December 2010 from TL 2,059.2 million as at 31 December 2009.


The Bank’s securities portfolio, principally held-to-maturity securities consisting of Turkish governmentbonds, including bonds and treasury bills denominated in TL and eurobonds denominated in foreigncurrency, represent a significant portion of the Bank’s assets. As at 31 December 2011, 2010 and 2009, held-to-maturity securities represented 5.3%, 14.3% and 4.8%, respectively, of the Bank’s total assets. The tablesthat follow provide information as to the breakdown of the Bank’s securities portfolio.

52

The following table sets forth the Bank’s breakdown of held-to-maturity securities and trading securities asat 31 December 2011, 2010 and 2009.

As at 31 December–––––––––––––––––––––––––––––––

2011 2010 2009––––––––– ––––––––– –––––––––

(in thousands of TL)Debt Securities(1)

– Turkish Government bonds .............................................................................................. 466,072 747,757 217,855– Turkish Treasury bills ...................................................................................................... 45,364 50,862 41,549– Turkish Eurobonds............................................................................................................ — 93,084 49,664

––––––––– ––––––––– –––––––––Total held-to-maturity securities ...................................................................................... 511,436 891,703 309,068

––––––––– ––––––––– –––––––––––––––––– ––––––––– –––––––––Turkish Government bonds ................................................................................................ 301,364 304,842 117,917Turkish Treasury bills .......................................................................................................... — — 28,900Turkish Eurobonds .............................................................................................................. 41,571 3,646 3,332

––––––––– ––––––––– –––––––––Total trading securities...................................................................................................... 342,935 308,488 150,149

––––––––– ––––––––– –––––––––––––––––– ––––––––– –––––––––

(1) As at 31 December 2011, the value of securities subject to repurchase transactions was TL 230,868 thousand, as compared to TL nilas at 31 December 2010. As at 31 December 2011, government bonds and treasury bills amounting to TL 182,309 thousand(compared to TL 249,495 thousand as at 31 December 2010 and TL 230,413 thousand as at 31 December 2009) had been pledged ascollateral with the CBRT and Istanbul Stock Exchange-Settlement and Custody Bank.

The following table sets forth the Bank’s breakdown of available-for-sale securities as at 31 December 2011,2010 and 2009.

As at 31 December–––––––––––––––––––––––––––––––

2011 2010 2009––––––––– ––––––––– –––––––––

(in thousands of TL)Equity securities– Listed ................................................................................................................................ 8,295 13,202 11,744– Unlisted ............................................................................................................................ 3,000 2,000 2,000

––––––––– ––––––––– –––––––––Total available-for-sale-securities .................................................................................... 11,295 15,202 13,744

––––––––– ––––––––– –––––––––––––––––– ––––––––– –––––––––

As at 31 December 2011, the Bank held listed equity securities consisting of a 9.78% share of GarantiFaktoring Hizmetleri A.Ş. and a 1.66% share of Kredi Garanti Fonu A.Ş. with an aggregate carrying amountof TL 11.3 million.

The Bank’s total securities portfolio declined from TL 1,200,191 thousand in 2010 to TL 854,371 thousandin 2011. The most significant change in the Bank’s securities portfolio in 2011 was a decrease in held-to-maturity securities and an increase in trading securities as a result of the use of the proceeds of redeemedheld-to-maturity securities to fund additional loans and increased holdings of trading securities for liquiditymanagement purposes. The increase in held-to-maturity securities in 2010 was due to lower levels of loandemand.

Liabilities

As at 31 December 2011, the Bank’s total liabilities amounted to TL 5,935.1 million, an increase of 128.3%from TL 2,599.4 million as at 31 December 2010. The overall increase was primarily attributable to theincrease in funds borrowed as a result of increased discounting of credits with the CBT under the Bank’srediscounting credits facility and the issuance of the USD 500 million November 2011 Bond in 2011,amounting to a total of TL 960,419 thousand (TL 952,332 thousand as principal and TL 8,087 thousand asinterest). Additionally, as at 31 December 2011, the Bank had TL 157.9 million in interbank money marketdeposits, due to funds provided under repurchase agreements.

53

Funds Borrowed

The following table sets forth the Bank’s funding from domestic and foreign banks as at 31 December 2011,2010 and 2009.

As at 31 December–––––––––––––––––––––––––––––––

2011 2010 2009––––––––– ––––––––– –––––––––


Domestic Banks(*) ................................................................................................................ 3,432,740 985,780 909,537Foreign Banks...................................................................................................................... 1,237,020 812,932 1,116,347

––––––––– ––––––––– –––––––––Total funds borrowed ........................................................................................................ 4,669,760 1,798,712 2,025,884

––––––––– ––––––––– –––––––––––––––––– ––––––––– –––––––––

(*) Includes subordinated loans from the Turkish Treasury amounting to TL 207,753 thousand, TL 193,005 thousand and TL 211,430thousand as at 31 December 2011, 2010 and 2009 respectively.

The following table sets forth the Bank’s breakdown of funds borrowed as at 31 December 2011, 2010 and2009.

As at 31 December–––––––––––––––––––––––––––––––

2011 2010 2009––––––––– ––––––––– –––––––––


Syndicated loans(i) ................................................................................................................ 408,590 618,408 814,992CBRT Loans(ii)...................................................................................................................... 3,062,815 688,732 481,209Subordinated loans(iii) .......................................................................................................... 207,753 193,005 211,430World Bank (EFIL) loans(iv) ................................................................................................ 278,674 143,070 86,178T.C. Ziraat Bankası A.Ş.(v) .................................................................................................. 125,026 104,043 216,898European Investment Bank(vi) .............................................................................................. 124,002 51,454 53,707Black Sea Trade and Development Bank............................................................................ – – 61,326Demir Halkbank N.V. – Netherlands(vii) .............................................................................. 62,414 – 54,794Japan Bank for International Cooperation (“JBIC”) .......................................................... – – 45,350ING Bank Amsterdam(viii) .................................................................................................... 175,465 – –Ziraat Int. AG(ıx).................................................................................................................... 37,666 – –Mizuho Corporate Bank Ltd.(x) ............................................................................................ 62,389 – –ING Bank N.V.(xi) ................................................................................................................ 124,966 – –

––––––––– ––––––––– –––––––––Total .................................................................................................................................... 4,669,760 1,798,712 2,025,884

––––––––– ––––––––– –––––––––––––––––– ––––––––– –––––––––

(i) The Bank raised syndicated loan facilities in the amount of EUR 165 million (TL 408,045 thousand) with a maturity of one year at10 June 2011. As at 31 December 2011, the total balance of syndicated borrowings amounted to TL 408,590 thousand and accrualson these borrowings amounted to TL 545 thousand.

(ii) The Bank obtained credit from the CBRT within the framework of the Short Term Export Receivables Discount Loan and RediscountLoan programs amounting to TL 3,062,815 thousand as at 31 December 2011. This credit was used to fund short-term export loansof typically 4 months.

(iii) As at 31 December 2011, USD 200 million of the Fiscal and Public Sector Adaptation Credit, with a maturity of 15 April 2018,provided by the World Bank to the Turkish Treasury in accordance with the agreement signed on 12 July 2001, was transferred to theBank for the development and support of the export-oriented real sector. The accrual on this borrowing amounted to TL 385 thousandand the total balance amounted to TL 207,753 thousand as at 31 December 2011.

(iv) The outstanding balances of the two lines of credit from the World Bank as at 31 December 2011 amounted to TL 246,886 thousand(equivalent of USD 128,983 thousand) and TL 31,323 thousand (equivalent of EUR 12,666 thousand). Total accrual on theseborrowings amounted to TL 465 thousand and the total balance amounted to TL 278,674 thousand.

(v) The one-year EUR 50 million (TL 123,650 thousand) loan raised from Ziraat Bankası A.Ş., was rolled over in March 2011 to matureon 13 March 2012. As at 31 December 2011, the accrual on the borrowing amounted to TL 1,376 thousand and the total outstandingbalance amounted to TL 125,026 thousand. This loan matured and was repaid on 13 March 2012.

(vi) As at December 2011, the Bank had a loan facility with the European Investment Bank guaranteed by the Turkish Treasury in May2008. The loans disbursed under this facility as at 31 December 2011 totaled EUR 50 million (TL 123,650 thousand) with a totalmaturity of 12 years with the principal repayment period starting after the fourth year in 2015. Total accrual on the facility amountedto TL 353 thousand and the total balance amounted to TL 124,002 thousand at 31 December 2011. See “—Recent Developments.”

(vii) EUR 25 million (TL 61,825 thousand) short-term loan borrowed from Demir-Halk Bank. As at 31 December 2011, the accrual on theborrowing amounted to TL 589 thousand and the total outstanding balance amounted to TL 62,414 thousand.

(viii) EUR 70 million was raised through a repo agreement with ING Bank Amsterdam with respect to a portfolio of domestic currencydenominated government bonds in July 2011. Total accrual on this borrowing amounted to TL 2,352 thousand and total amountborrowed was TL 175,465 thousand as at 31 December 2011.

(ix) The Bank raised a EUR 15 million (TL 37,095 thousand) loan facility from Ziraat International AG with a total maturity of one year.Total accrual on this borrowing amounted to TL 571 thousand and total amount of the borrowings was TL 37,666 thousand as at 31December 2011.

(x) The Bank raised a EUR 25 million (TL 61,825 thousand) loan facility from Mizuho Corporate Bank Ltd. with a total maturity of one

54

year. Total accrual on this borrowing amounted to TL 564 thousand and total amount borrowed was TL 62,389 thousand as at 31December 2011.

(xi) The Bank raised a EUR 50 million (TL 123,650 thousand) loan facility from ING Bank N.V. with a total maturity of one year. Totalaccrual on this borrowing amounted to TL 1,316 thousand and total amount of the borrowings was TL 124,966 thousand as at 31December 2011.

Most of the Bank’s loan agreements contain a financial covenant to maintain a minimum capital adequacyratio at all times (currently 12% as recommended by the BRSA) and a cross-default provision triggered bynon-payment of other external indebtedness which exceeds EUR 10 million.

The following table sets forth the maturity profile of funds borrowed as at 31 December 2011, 2010 and2009.

Up to 3 months 1 year to Over No3 months to 1 year 5 years 5 years maturity Total

––––––––– ––––––––– ––––––––– ––––––––– ––––––––– –––––––––(in thousands of TL)

31 December 2011.......................... 2,260,587 1,836,534 207,630 365,009 – 4,669,76031 December 2010.......................... 599,643 840,263 133,064 225,742 – 1,798,71231 December 2009.......................... 509,954 1,131,100 177,630 207,200 – 2,025,884

As at 31 December 2011, the Bank’s total funds borrowed amounted to TL 4,669.8 million, an increase of159.6% from TL 1,798 million as at 31 December 2010. The increase was primarily attributable to increasedborrowings, mainly from the CBRT, under syndicated loans and under a EUR 25 million loan from DemirHalkbank N.V., proceeds of which were used to fund additional loans to customers as loan demand increasedand the issuance the November 2011 Bonds by the Bank.

In 2011, in order to fund loan activity and to fulfill its maturing debt obligations, the Bank raised a total ofUSD 659 million in loans, including a syndicated loan in June 2011. On 27 April 2011 and on 2 December2011, the Bank repaid two syndicated loans in the total amount of EUR 300 million. In addition, the Bankalso utilized the Central Bank’s rediscount facility by using promissory notes issued by exporters. As at 31December 2011, the outstanding balance of this facility increased to TL 3,062 million from TL 688 millionas at 31 December 2010.

For more information regarding indebtedness entered into since 31 December 2011, see “Capitalization.”

Debt securities in issue

As of 31 December 2011, the total liability amount due for the USD 500 million of November 2011 Bondswas TL 960,419 thousand with TL 952,332 thousand as principal and the TL 8,087 thousand as interest.

55

Other Liabilities

The following table sets forth the Bank’s other liabilities as at 31 December 2011, 2010 and 2009.

As at 31 December–––––––––––––––––––––––––––––––

2011 2010 2009––––––––– ––––––––– –––––––––


Liabilities for Iraq Credit .................................................................................................... 21,592 736,707 685,602Turkish Treasury-current account-Iraq credit.................................................................. 21,454 634,928 594,606Funds from United Nations Compensation Fund-Iraq Credit ........................................ 35 95,068 84,285Funds – Development and Support Fund........................................................................ 103 6,711 6,711

Vacation Pay Liability ........................................................................................................ 6,802 5,313 4,885Guarantees received(1) .......................................................................................................... 29,305 5,565 4,971Other .................................................................................................................................... 54,341(2) 17,107 33,312

––––––––– ––––––––– –––––––––Total .................................................................................................................................... 112,040 764,692 728,770

––––––––– ––––––––– –––––––––––––––––– ––––––––– –––––––––

(1) Guarantees received refers to cash guarantees provided by the Bank in relation to rediscount credits, which has increased in line withthe increase in the amount of rediscount credits.

(2) This amount covers the bonus accrual amounting to TL 30,000 thousand allocated by the Bank management for the second half of2008 and for the years 2009, 2010 and 2011, in which no bonus was paid to the employees, taking into the account the cases thatresulted in decisions against the Bank.

As at 31 December 2011, the Bank’s total other liabilities amounted to TL 112.0 million, a decrease of 85.3%from TL 764.7 million as at 31 December 2010. The overall decrease was primarily attributable to theliquidation of amounts owed to the government of Turkey in connection with government credits extendedthrough the Development and Support Fund to support Turkish contractors negatively impacted by the Iraqwar in 1991. The Bank has acted only as an agent with respect to the payment of these Iraq credit liabilities.Also, pursuant to Law No. 6111, liabilities relating to the Iraqi credit scheme and funds transferred by theTurkish Treasury were liquidated or transferred.

Shareholders’ Equity

As at 31 December 2011, the Bank’s equity amounted to 38.1% of the Bank’s total assets, compared to58.3% as at 31 December 2010, due to a significant increase in assets in 2011 without a correspondingincrease in equity.

The following table sets forth the capital contributions by the Turkish Treasury for the years ended 31December 2011, 2010 and 2009.


2011 2010 2009––––––––– ––––––––– –––––––––


Cash Capital Injections........................................................................................................ — — 315,294

The Turkish Treasury has made, and is expected to continue to make, periodic capital contributions to theBank. Any such contribution must be included within the proposed budget for the following year and theamount is only paid out after the budget is approved. The nominal capital of the Bank increased to TL 2billion in September 2009 and the paid-in capital was fully paid as at December 2009. For details of theBank’s current capitalization, see “Capitalization.”

Liquidity

The Bank’s principal sources of funding are (i) direct funding from the Treasury through capital injections,(ii) bilateral funding from commercial banks and (iii) funds raised in the international financial markets. TheBank receives capital contributions from the Treasury, political risk indemnification by the Treasury, loansfrom domestic and international banks, borrowings from the Central Bank and monies received from theissuance of notes and other debt securities. Unlike most commercial banks, the Bank does not accept any

56

retail or corporate deposits, although it does, from time to time, accept certain interbank deposits.Accordingly, the Bank has a positive duration gap, with longer-term funding and shorter-term assets. As aresult, the Bank’s liquidity is more manageable than Turkish commercial banks, with its principal liquiditydemands occurring as a result of repayments of its foreign currency borrowings and new credit activity.Accordingly, the Bank is generally able to plan for its principal liquidity demands in advance, typicallythrough arranging further borrowings to pay off debts coming due or through increasing its cash on hand byretaining (and not re-lending) proceeds received upon repayment of loans extended by the Bank. Becausemost of the Bank’s loan portfolio is comprised of short-term loans, it is able to rely on cashflow from itsmaturing loans as a substantial part of its liquidity management.

Capital Adequacy

Banks in Turkey are required to comply with capital adequacy guidelines promulgated by the BRSA, whichare based upon the standards established by the Bank of International Settlements (“BIS”). These guidelinesrequire banks to maintain adequate levels of regulatory capital against risk-bearing assets and off-balancesheet exposures.

Under these guidelines a bank’s capital adequacy ratio is calculated by taking the aggregate of its Tier Icapital (which comprises paid-in capital, reserves, retained earnings and profit for the current period minusperiod loss (if any), prepaid expenses, leasehold improvements and intangible assets), its Tier II capital(which comprises general loan and free reserves, revaluation funds and subordinated loans obtained) and itsTier III capital (which comprises certain qualified subordinated loans in accordance with BIS guidelines)minus deductions (which comprises participations in financial institutions, special and preliminary andnegative differences between fair and book values of subsidiaries, subordinated loans extended, goodwill andcapitalized costs), and dividing this aggregate by risk weighted assets, which reflect both credit risk, marketrisk and operational risk. In accordance with these guidelines, banks must maintain a total capital adequacyratio of a minimum of 8%, although the BRSA recommended level is 12%.

The Bank has complied with the minimum capital adequacy ratio requirement, stated above, for the yearsended 31 December 2011, 2010 and 2009. As at 31 December 2011, the Bank’s capital adequacy ratio was95.91%. As at 31 December 2010 and 2009, the Bank’s capital adequacy ratio was 142.8% and 125.7%,respectively. The Bank estimates that under Basel II standards, the Bank’s capital adequacy ratio as at 31December 2011 would fall to the 30%-range, principally reflecting a change to 100% risk weight forexposure to other Turkish banks as well as corporate loans guaranteed by Turkish commercial banks fromthe 20% risk weighting under Basel I.

The following table sets forth the Bank’s regulatory capital position at 31 December 2011, 2010 and 2009(under Basel I).

As at 31 December–––––––––––––––––––––––––––––––

2011 2010 2009––––––––– ––––––––– –––––––––


Tier I capital ........................................................................................................................ 3,657,278 3,656,594 3,682,327Tier II capital ...................................................................................................................... 49,949 27,970 28,712

––––––––– ––––––––– –––––––––Total regulatory capital (A) ................................................................................................ 3,707,227 3,684,564 3,711,039

––––––––– ––––––––– –––––––––Risk-weighted assets (including market and operational risk) (B) .................................... 3,865,201 2,580,167 2,951,717

––––––––– ––––––––– –––––––––Capital adequacy ratio (%) (A)/(B) ................................................................................ 95.91% 142.80% 125.72%

––––––––– ––––––––– –––––––––––––––––– ––––––––– –––––––––

Derivative Financial Instruments

The Bank uses currency and interest rate swaps, which are commitments to exchange one set of cash flowsfor another. Swaps result in an economic exchange of currencies or interest rates. Currency swaps involvethe exchange of principal as well. The Bank’s credit risk with respect to swap transactions represents thepotential cost of replacing the swap contracts if counterparties fail to perform their obligations. This risk is

57

monitored on an ongoing basis with reference to the current fair value, a proportion of the notional amountof the contracts and the liquidity of the market. To control the level of credit risk taken, the Bank assessescounterparties using the same techniques as for its lending activities.

The notional amounts of certain types of financial instruments provide a basis for comparison withinstruments recognized on the balance sheet but do not necessarily indicate the amounts of future cash flowsinvolved or the current fair value of the instruments and, therefore, do not indicate the Bank’s exposure tocredit or price risks. The derivative instruments become favorable (as assets) or unfavorable (as liabilities) asa result of fluctuations in foreign exchange rates and interest rates. The aggregate contractual or notionalamount of derivative financial instruments on hand, the extent to which instruments are favorable orunfavorable and, thus, the aggregate fair values of derivative financial assets and liabilities can fluctuatesignificantly from time to time.

The following table sets forth the fair values of the Bank’s derivative instruments held as at 31 December2011, 2010 and 2009.

As at 31 December––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––

2011 2010 2009Fair value Fair value Fair value

––––––––––––––––––––––– ––––––––––––––––––––––– –––––––––––––––––––––––Assets Liabilities Assets Liabilities Assets Liabilities


Interest rate swaps purchasesand sales........................................ — (4,842) — (3,982) — (3,356)

Foreign currency swaps purchasesand sales........................................ 15,895 (18,475) 1,885 (21,182) 7,856 (1,614)

Cross currency swaps purchasesand sales........................................ — — — — 8,692 (319)

––––––––– ––––––––– ––––––––– ––––––––– ––––––––– –––––––––Total derivative assets/(liabilities) 15,895 (23,317) 1,885 (25,164) 16,548 (5,289)

––––––––– ––––––––– ––––––––– ––––––––– ––––––––– –––––––––

Off balance sheet commitments under derivative instruments

The following tables set forth a breakdown of the Bank’s swap transactions as at 31 December 2011, 2010and 2009.

As at 31 December––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––

2011 2010 2009–––––––––––––––––––––––– –––––––––––––––––––––––– ––––––––––––––––––––––––

Foreign Foreign Foreigncurrency currency currency

Currency amount TL 000 amount TL 000 amount TL 000––––––––––– ––––––––––– ––––––––––– ––––––––––– ––––––––––– ––––––––––– –––––––––––

Transaction TypeInterest rate swap purchases .. USD 21,000,000 40,196 30,000,000 46,248 30,000,000 44,700Foreign currency swappurchases .............................. EUR 135,000,000 333,855 15,000,000 30,852 20,000,000 42,942

TL 327,902,500 327,903 631,119,930 631,120 561,014,240 561,014JPY 271,705,000 6,698 — — — —

Foreign currency forwardpurchases .............................. USD 212,279,510 406,324 — — — —

TL 125,961,718 125,962 — — — —Cross-currency swap purchases JPY — — — — 2,190,228,568 35,361

––––––––––– ––––––––––– –––––––––––Total purchases .................... 1,240,938 708,220 684,017

––––––––––– ––––––––––– –––––––––––––––––––––– ––––––––––– –––––––––––Interest rate swap sales .......... USD 21,000,000 40,196 30,000,000 46,248 30,000,000 44,700Foreign currency swap sales .. USD 357,046,630 683,423 413,905,225 638,076 398,430,000 593,661................................................ EUR — — 20,000,000 41,136 — —Cross-currency swap sales .... USD — — — — 18,142,222 27,032Foreign currency forward sales USD 66,717,100 127,703 — — — —................................................ TL 397,260,801 397,261 — — — —

––––––––––– ––––––––––– –––––––––––Total sales .............................. 1,248,583 725,460 665,393

––––––––––– ––––––––––– –––––––––––––––––––––– ––––––––––– –––––––––––2,489,521 1,433,680 1,349,410

––––––––––– ––––––––––– –––––––––––––––––––––– ––––––––––– –––––––––––

58

The following table sets forth a maturity analysis of the Bank’s swap transactions as at 31 December 2011.

As at 31 December 2011––––––––––––––––––––––––––––––––––––––––––––––––––––

Up to 3 months to 1 year to Over3 months 1 year 5 Years 5 Years Total

––––––––– ––––––––– ––––––––– ––––––––– –––––––––(in thousands of TL)

Interest rate swap purchases ...................................... — — 40,196 — 40,196Foreign currency swap purchases .............................. 668,456 — — — 668,456Forward foreign currency purchases .......................... 532,286 — — — 532,286

––––––––– ––––––––– ––––––––– ––––––––– –––––––––Total purchases.......................................................... 1,200,742 — 40,196 — 1,240,938

––––––––– ––––––––– ––––––––– ––––––––– –––––––––Interest rate swap sales .............................................. — — 40,196 — 40,196Foreign currency swap sales ...................................... 683,423 — — — 683,423Forward foreign currency purchases .......................... 524,964 — — — 524,964

––––––––– ––––––––– ––––––––– ––––––––– –––––––––Total sales .................................................................. 1,208,387 — 40,196 — 1,248,583

––––––––– ––––––––– ––––––––– ––––––––– –––––––––––––––––– ––––––––– ––––––––– ––––––––– –––––––––


As at 31 December 2010––––––––––––––––––––––––––––––––––––––––––––––––––––



Interest rate swap purchases ...................................... — — 46,248 — 46,248Foreign currency swap purchases .............................. 661,972 — — — 661,972

––––––––– ––––––––– ––––––––– ––––––––– –––––––––Total purchases.......................................................... 661,972 — 46,248 — 708,220

––––––––– ––––––––– ––––––––– ––––––––– –––––––––––––––––– ––––––––– ––––––––– ––––––––– –––––––––Interest rate swap sales .............................................. — — 46,248 — 46,248Foreign currency swap sales ...................................... 668,431 10,781 — — 679,212

––––––––– ––––––––– ––––––––– ––––––––– –––––––––Total sales .................................................................. 668,431 10,781 46,248 — 725,460

––––––––– ––––––––– ––––––––– ––––––––– –––––––––––––––––– ––––––––– ––––––––– ––––––––– –––––––––


As at 31 December 2009––––––––––––––––––––––––––––––––––––––––––––––––––––



Interest rate swap purchases ...................................... — — 16,390 28,310 44,700Foreign currency swap purchases .............................. 573,206 30,750 — — 603,956Cross-currency swap purchases .................................. 8,772 26,589 — — 35,361

––––––––– ––––––––– ––––––––– ––––––––– –––––––––Total purchases.......................................................... 581,978 57,339 16,390 28,310 684,017

––––––––– ––––––––– ––––––––– ––––––––– –––––––––––––––––– ––––––––– ––––––––– ––––––––– –––––––––Interest rate swap sales .............................................. — — 16,390 28,310 44,700Foreign currency swap sales ...................................... 563,861 29,800 — — 593,661Cross-currency swap sales .......................................... 6,729 20,303 — — 27,032

––––––––– ––––––––– ––––––––– ––––––––– –––––––––Total sales .................................................................. 570,590 50,103 16,390 28,310 665,393

––––––––– ––––––––– ––––––––– ––––––––– –––––––––––––––––– ––––––––– ––––––––– ––––––––– –––––––––

The above tables summarize the Bank’s off balance sheet derivative transactions that will be settled on a netbasis into relevant maturity groupings based on the remaining period at the applicable balance sheet date.Accordingly, the difference between the “sale” and “purchase” transactions represents the net exposure ofthe Bank with respect to commitments arising from these transactions.

59

Off balance sheet liabilities

In the normal course of banking activities, the Bank undertakes various commitments and incurs certaincontingent liabilities that are not presented in its balance sheets, including insurance activities, letters ofguarantee, other guarantees and off-balance sheet derivative instruments. The Bank’s management does notexpect any material losses as a result of these transactions. The following is a summary of significantcommitments and contingent liabilities:

Credit related commitments

Letters of guarantee, which represent irrevocable assurances that the Bank will make payments in the eventthat a customer cannot meet its obligations to third parties, carry the same credit risk as loans. Cashrequirements under these guarantees are considerably less than the amount of the commitment because theBank does not generally expect the third party to draw funds under the agreement.

The total outstanding contractual amount of commitments to extend credit does not necessarily representfuture cash requirements, since many of these commitments will expire or terminate without being funded.

The following table sets forth the outstanding credit related commitments of the Bank as at 31 December2011, 2010 and 2009.

As of 31 December–––––––––––––––––––––––––––––––

2011 2010 2009––––––––– ––––––––– –––––––––

(in thousands of TL)Financial guaranteesEndorsements– Foreign currency .............................................................................................................. — 688,732 481,209Other guarantees– Foreign currency .............................................................................................................. 518,997 389,971 359,943

––––––––– ––––––––– –––––––––518,997 1,078,703 841,152

––––––––– ––––––––– –––––––––––––––––– ––––––––– –––––––––

The Bank also has share capital commitment amounting to TL 1,000 thousand and TL 2,000 thousand as of31 December 2011 and 2010 in connection with its equity shareholding in Kredi Garanti Fonu A.Ş.; for moreinformation, see “—Assets—Securities Portfolio” above.

The Bank provides cover for Turkish exporters, against commercial and political risks by offering a varietyof insurance programs. Other guarantees include the Bank’s commitment related with the underwritten short-term commercial and political risks. See “Business—Banking Activities—Insurance” for further information.

60

SELECTED STATISTICAL AND OTHER INFORMATION

The following tables set forth certain selected statistical information and ratios for the Bank as at and for theperiods indicated. The selected statistical information should be read in conjunction with the IFRS FinancialStatements, and the information included in “Management’s Discussion and Analysis of Results ofoperations and Financial Condition.”

Average Balance Sheet and Interest Rate Data

The following tables set forth the average balances of interest bearing assets and interest bearing liabilitiesof the Bank for the years ended 31 December 2011, 2010 and 2009 based on the Bank’s Statutory FinancialStatements and other financial information prepared in accordance with BRSA principles. The table also setsforth the amounts of interest income earned and interest expense incurred by the Bank in the years ended 31December 2011, 2010 and 2009, as well as the average interest rates at which interest income was earned onsuch assets and interest expense was incurred on such liabilities based on the Bank’s Statutory FinancialStatements and other financial information prepared in accordance with BRSA principles. For the purposesof this table and the following table, average balances of assets and liabilities for the Bank for the years ended31 December 2011, 2010 and 2009 represent the average of the opening balances as at 31 December of theprior year, the unaudited balances as at month end for each of the months of January to November of theapplicable year and the closing balance as at the end of the applicable year. Unaudited balances as at the endof the months of January to November of each of the years 2011, 2010 and 2009 were extracted fromunaudited interim financial statements prepared in accordance with BRSA principles. See “Presentation ofFinancial and Other Information—Average Balance Sheet and Interest Rate Data.” The results of theanalysis would likely be different if alternative or more frequent averaging methods were used and suchdifferences could be material. For the purposes of this table and the following table, the average interest ratefor any line item is calculated by dividing interest income or interest expense, as applicable, by the averagebalance for such line item for the relevant year. Average interest rates in this and the following table aredistinct from the period-end effective interest rates discussed in the Bank’s IFRS Financial Statements.

61

Year ended Year ended Year ended31 December 2011 31 December 2010 31 December 2009

–––––––––––––––––––––––––––– –––––––––––––––––––––––––––– ––––––––––––––––––––––––––––Average Interest Average Average Interest Average Average Interest Average Balance Income Rate % Balance Income Rate % Balance Income Rate %

–––––––– –––––––– –––––––– –––––––– –––––––– –––––––– –––––––– –––––––– ––––––––(in thousands of TL, except percentages)

ASSETSInterest-earning deposits

in banks & reserve requirements & interbank money:

TL .......................................... 282,732 22,268 7.88 1,234,918 83,286 6.74 856,628 75,815 8.85Foreign currency .................... 242,478 1,625 0.67 348,337 961 0.28 260,499 1,355 0.52

–––––––– –––––––– –––––––– –––––––– –––––––– –––––––– –––––––– –––––––– ––––––––Total........................................ 525,210 23,893 4.55 1,583,255 84,246 5.32 1,117,127 77,170 6.91

–––––––– –––––––– –––––––– –––––––– –––––––– –––––––– –––––––– –––––––– ––––––––Marketable securities:TL .......................................... 826,138 54,223 6.56 657,050 55,493 8.45 264,899 34,395 12.98Foreign currency .................... 52,967 3,270 6.17 52,277 3,807 7.28 58,170 2,778 4.78

–––––––– –––––––– –––––––– –––––––– –––––––– –––––––– –––––––– –––––––– ––––––––Total........................................ 879,105 57,493 6.54 709,327 59,300 8.36 323,069 37,173 11.51

–––––––– –––––––– –––––––– –––––––– –––––––– –––––––– –––––––– –––––––– ––––––––Loans:(1)

TL .......................................... 1,991,569 154,000 7.73 1,380,129 118,427 8.58 1,763,648 248,391 14.08Foreign currency .................... 3,276,764 77,230 2.36 1,815,862 53,494 2.95 2,006,553 74,699 3.72

–––––––– –––––––– –––––––– –––––––– –––––––– –––––––– –––––––– –––––––– ––––––––Total........................................ 5,268,333 231,230 4.39 3,195,990 171,921 5.38 3,770,201 323,090 8.57

–––––––– –––––––– –––––––– –––––––– –––––––– –––––––– –––––––– –––––––– ––––––––Other:(2)

TL .......................................... — 246 — — 174 — — 269 —Foreign currency .................... — 497 — — 112 — — 270 —

–––––––– –––––––– –––––––– –––––––– –––––––– –––––––– –––––––– –––––––– ––––––––Total........................................ — 743 — — 286 — — 539 —

–––––––– –––––––– –––––––– –––––––– –––––––– –––––––– –––––––– –––––––– ––––––––Total interest-earning assets:TL .......................................... 3,100,439 230,737 7.44 3,272,097 257,380 7.87 2,885,176 358,870 12.44Foreign currency .................... 3.572.209 82,622 2.31 2,216,476 58,374 2.63 2,325,222 79,102 3.40

–––––––– –––––––– –––––––– –––––––– –––––––– –––––––– –––––––– –––––––– ––––––––Total........................................ 6,672,648 313,359 4.70 5,488,573 315,753 5.75 5,210,398 437,972 8.41

–––––––– –––––––– –––––––– –––––––– –––––––– –––––––– –––––––– –––––––– –––––––––––––––– –––––––– –––––––– –––––––– –––––––– –––––––– –––––––– –––––––– ––––––––

(1) Calculated on the basis of net loans and advances to customers, excluding accruals and loans funded by the Development and SupportFund.

(2) Includes overdue/penalty interest and interest income from reverse repo transactions.

62

Year ended Year ended Year ended31 December 2011 31 December 2010 31 December 2009

–––––––––––––––––––––––––––– –––––––––––––––––––––––––––– ––––––––––––––––––––––––––––Average Interest Average Average Interest Average Average Interest Average Balance Income Rate % Balance Income Rate % Balance Income Rate %

–––––––– –––––––– –––––––– –––––––– –––––––– –––––––– –––––––– –––––––– ––––––––(in thousands of TL, except percentages)

LIABILITIESFunds from interbank

money market:TL .......................................... — — — — — — — — —Foreign currency .................... — — — — — — 2,428 15 0.63

–––––––– –––––––– –––––––– –––––––– –––––––– –––––––– –––––––– –––––––– ––––––––Total........................................ — — — — — — 2,428 15 0.63

–––––––– –––––––– –––––––– –––––––– –––––––– –––––––– –––––––– –––––––– ––––––––Funds provided under

repurchase agreements(1)

TL .......................................... 116,626 1,957 1.68 — — — — — —Foreign currency .................... 172,971 2,351 1.36 — — — — — —

–––––––– –––––––– –––––––– –––––––– –––––––– –––––––– –––––––– –––––––– ––––––––Total........................................ 289,597 4,308 1.49 — — — — — —

–––––––– –––––––– –––––––– –––––––– –––––––– –––––––– –––––––– –––––––– ––––––––BorrowingsTL .......................................... — — — — — — — — —Foreign currency .................... 2,678,374 36,299 1.36 1,728,961 26,997 1.56 1,798,628 50,602 2.81

–––––––– –––––––– –––––––– –––––––– –––––––– –––––––– –––––––– –––––––– ––––––––Total........................................ 2,678,374 36,299 1.36 1,728,961 26,997 1.56 1,798,628 50,602 2.81

–––––––– –––––––– –––––––– –––––––– –––––––– –––––––– –––––––– –––––––– ––––––––Debt Securities in Issue(1)

TL .......................................... — — — — — — — — —Foreign currency(2) .................. 936,869 8,248 0.88 — — — — — —

–––––––– –––––––– –––––––– –––––––– –––––––– –––––––– –––––––– –––––––– ––––––––Total........................................ 936,869 8,248 0.88 — — — — — —

–––––––– –––––––– –––––––– –––––––– –––––––– –––––––– –––––––– –––––––– ––––––––Other(3)

TL .......................................... — — — — — — — 14 —Foreign currency .................... — 14 — — 48 — — 94 —

–––––––– –––––––– –––––––– –––––––– –––––––– –––––––– –––––––– –––––––– ––––––––Total........................................ — 14 — — 48 — — 108 —

–––––––– –––––––– –––––––– –––––––– –––––––– –––––––– –––––––– –––––––– ––––––––Total interest-bearing

liabilities:TL .......................................... 116,626 1,957 1.68 — — — — 14 —Foreign currency .................... 3,788,214 46,912 1.24 1,728,961 27,045 1.56 1,801,055 50,711 2.82

–––––––– –––––––– –––––––– –––––––– –––––––– –––––––– –––––––– –––––––– ––––––––Total........................................ 3,904,840 48,869 1.25 1,728,961 27,045 1.56 1,801,055 50,725 2.82

–––––––– –––––––– –––––––– –––––––– –––––––– –––––––– –––––––– –––––––– –––––––––––––––– –––––––– –––––––– –––––––– –––––––– –––––––– –––––––– –––––––– ––––––––

(1) Average balances of liabilities for the Bank for the years ended 31 December 2011, 2010 and 2009 represent the average of theopening balances as at 31 December of the prior year, the unaudited balances as at month end for each of the months of January toNovember of the applicable year and the closing balance as at the end of the applicable year. Notwithstanding this method ofcalculation, the yields on ‘Funds provided under repurchase agreements’ and ‘Debt securities in issue’ are calculated on a differentbasis, i.e. as the interest expense divided by the average balances of monthly balances only for the period where an outstandingbalance exists. Given that there was no balance in the other months, using 13-month average balances would produce distorted results.

(2) Consists of the 5.375% November 2011 Bond and includes interest expense from the date of issuance.

(3) Includes interest expense accrued during a waiting period (of at most 120 days) for claims to be paid to exporters arising from thecredit insurance facility.

63

Interest Earning Assets: Yield, Margin and Spread

The following table sets forth the Bank’s net interest income, yields on interest-earning assets and interest-bearing liabilities, net interest margins and net interest spreads for the years ended 31 December 2011, 2010and 2009.

As at 31 December–––––––––––––––––––––––––––––––

2011 2010 2009––––––––– ––––––––– –––––––––

(in thousands of TL, except percentages)Net Interest IncomeTL ........................................................................................................................................ 228,780 257,380 358,856Foreign Currency ................................................................................................................ 35,710 31,329 28,391

––––––––– ––––––––– –––––––––Total .................................................................................................................................... 264,490 288,708 387,247

––––––––– ––––––––– –––––––––––––––––– ––––––––– –––––––––Yield on interest-earning assetsTL ........................................................................................................................................ 7.44 7.87 12.44Foreign Currency ................................................................................................................ 2.31 2.63 3.40

––––––––– ––––––––– –––––––––Total .................................................................................................................................... 4.70 5.75 8.41

––––––––– ––––––––– –––––––––––––––––– ––––––––– –––––––––Yield on interest-bearing liabilities(1)

TL ........................................................................................................................................ 1.68 — —Foreign Currency ................................................................................................................ 1.24 1.56 2.82

––––––––– ––––––––– –––––––––Total .................................................................................................................................... 1.25 1.56 2.82

––––––––– ––––––––– –––––––––––––––––– ––––––––– –––––––––Net Interest Margin(2)


––––––––– ––––––––– –––––––––Total .................................................................................................................................... 3.96 5.26 7.43

––––––––– ––––––––– –––––––––––––––––– ––––––––– –––––––––Net Interest Spread(3)


––––––––– ––––––––– –––––––––Total(*) ................................................................................................................................ 3.44 4.19 5.59

––––––––– ––––––––– –––––––––––––––––– ––––––––– –––––––––

(*) The table above does not include loans funded by the Development and Support Fund, a fund created in 1991 during the Gulf Crisisby the Turkish Treasury to provide support to Turkish contractors who had been conducting business in Iraq.

(1) See footnote 1 in table found within “Selected Statistical and Other Information—Average Balance Sheet and Interest Rate Data.”

(2) Net interest margin is calculated as the Bank’s net interest income divided by the average balance of the Bank’s total interest-earningassets during the applicable period. Average balances of total interest-earning assets are calculated as the average of monthly balancesduring the applicable period.

(3) Net interest spread is calculated as the difference between the average interest rate on the Bank’s interest-earning assets and theaverage interest rate on the Bank’s interest-bearing liabilities. Interest-earning assets and interest-bearing liabilities are calculated asthe average of monthly balances during the applicable period.

Changes in Interest Income and Interest Expense—Volume and Rate Analysis

The following table sets forth a comparative analysis of changes in interest income and interest expense ofthe Bank for the years ended 31 December 2011, 2010 and 2009. Changes in interest income or interestexpense are attributed to either (i) changes in average balances (volume change) of interest earning assets orinterest bearing liabilities or (ii) changes in average rates (rate change) at which interest income was earnedon such assets or at which interest expense was incurred on such liabilities. Changes in interest income andexpense due to changes in volume have been calculated as the change in volume times the prior year’saverage rate. Changes in interest income and expense due to changes in rate have been calculated as theresidual amount which can be expressed as the difference between the total changes in interest income andexpense and the changes in interest income and expense due to changes in volume.

64

Analysis of Changes in Net Interest Income

Change from 31 December 2011 to Change from 31 December 2010 to 31 December 2010 31 December 2009

––––––––––––––––––––––––––––––– –––––––––––––––––––––––––––––––Increase/(decrease) Increase/(decrease)Due to changes in Due to changes in

––––––––––––––––––––––––––––––– –––––––––––––––––––––––––––––––Net Net

Volume Rate Change Volume Rate Change––––––––– ––––––––– ––––––––– ––––––––– ––––––––– –––––––––

(in thousands of TL)Interest-earning deposits in banks

& reserve requirements & interbank money:

TL .................................................. (64,218) 3,200 (61,018) 33,480 (26,009) 7,471Foreign currency ............................ (292) 956 664 457 (851) (394)

––––––––– ––––––––– ––––––––– ––––––––– ––––––––– –––––––––Total .............................................. (56,299) (4,054) (60,353) 32,199 (25,123) 7,077

––––––––– ––––––––– ––––––––– ––––––––– ––––––––– –––––––––––––––––– ––––––––– ––––––––– ––––––––– ––––––––– –––––––––Marketable securities:TL .................................................. 14,281 (15,551) (1,270) 50,918 (29,820) 21,098Foreign currency ............................ 50 (587) (537) (281) 1,311 1,029

––––––––– ––––––––– ––––––––– ––––––––– ––––––––– –––––––––Total .............................................. 14,194 (16,001) (1,807) 44,444 (22,317) 22,127

––––––––– ––––––––– ––––––––– ––––––––– ––––––––– –––––––––––––––––– ––––––––– ––––––––– ––––––––– ––––––––– –––––––––Loans: (in thousands of TL)

TL .................................................. 52,467 (16,894) 35,573 (54,015) (75,949) (129,964)Foreign currency ............................ 43,037 (19,301) 23,736 (7,099) (14,106) (21,205)

––––––––– ––––––––– ––––––––– ––––––––– ––––––––– –––––––––Total .............................................. 111,477 (52,168) 59,309 (49,207) (101,962) (151,169)

––––––––– ––––––––– ––––––––– ––––––––– ––––––––– –––––––––––––––––– ––––––––– ––––––––– ––––––––– ––––––––– –––––––––Total interest-earning assets:TL .................................................. (13,502) (13,140) (26,643) 48,127 (149,617) (101,491)Foreign currency ............................ 35,705 (11,457) 24,248 (3,699) (17,029) (20,728)

––––––––– ––––––––– ––––––––– ––––––––– ––––––––– –––––––––Total .............................................. 68,119 (70,513) (2,394) 23,383 (145,601) (122,219)

––––––––– ––––––––– ––––––––– ––––––––– ––––––––– –––––––––––––––––– ––––––––– ––––––––– ––––––––– ––––––––– –––––––––

65

Analysis of Changes in Net Interest Expense

Change from 31 December 2011 to Change from 31 December 2010 to 31 December 2010 31 December 2009

––––––––––––––––––––––––––––––– –––––––––––––––––––––––––––––––Increase/(decrease) Increase/(decrease)Due to changes in Due to changes in

––––––––––––––––––––––––––––––– –––––––––––––––––––––––––––––––Volume Rate Net Change Volume Rate Net Change


INTEREST EXPENSEFunds from Interbank Money

Market:TL .................................................. — — — — — —Foreign currency ............................ — — — (15) — (15)

––––––––– ––––––––– ––––––––– ––––––––– ––––––––– –––––––––Total .............................................. — — — (15) — (15)

––––––––– ––––––––– ––––––––– ––––––––– ––––––––– –––––––––––––––––– ––––––––– ––––––––– ––––––––– ––––––––– –––––––––Funds provided under

repurchase agreements:TL .................................................. 1,957 — 1,957 — — —Foreign currency ............................ 2,351 — 2,351 — — —

––––––––– ––––––––– ––––––––– ––––––––– ––––––––– –––––––––Total .............................................. 4,308 — 4,308 — — —

––––––––– ––––––––– ––––––––– ––––––––– ––––––––– –––––––––––––––––– ––––––––– ––––––––– ––––––––– ––––––––– –––––––––Borrowings:TL .................................................. — — — — — —Foreign currency ............................ 14,825 (5,523) 9,302 (1,960) (21,645) (23,605)

––––––––– ––––––––– ––––––––– ––––––––– ––––––––– –––––––––Total .............................................. 14,825 (5,523) 9,302 (1,960) (21,645) (23,605)

––––––––– ––––––––– ––––––––– ––––––––– ––––––––– –––––––––––––––––– ––––––––– ––––––––– ––––––––– ––––––––– –––––––––Debt Securities in IssueTL .................................................. — — — — — —Foreign currency ............................ 8,248 — 8,248 — — —

––––––––– ––––––––– ––––––––– ––––––––– ––––––––– –––––––––Total .............................................. 8,248 — 8,248 — — —

––––––––– ––––––––– ––––––––– ––––––––– ––––––––– –––––––––––––––––– ––––––––– ––––––––– ––––––––– ––––––––– –––––––––Total interest-bearing liabilities:TL .................................................. 1,957 — 1,957 (14) — (14)Foreign currency ............................ 32,211 (12,344) 19,867 (2,030) (21,637) (23,666)

––––––––– ––––––––– ––––––––– ––––––––– ––––––––– –––––––––Total .............................................. 34,036 (12,211) 21,824 (2,030) (21,650) (23,680)

––––––––– ––––––––– ––––––––– ––––––––– ––––––––– –––––––––––––––––– ––––––––– ––––––––– ––––––––– ––––––––– –––––––––

Loan Portfolio

All of the Bank’s loans are forms of export or project finance.

The following table sets forth the Bank’s gross and net loans and advances to customers as at 31 December2011, 2010 and 2009.

66

As at 31 December–––––––––––––––––––––––––––––––

2011 2010 2009––––––––– ––––––––– –––––––––

(in thousands of TL)Short-termFinancial institutions............................................................................................................ 2,739,251 1,723,748 1,812,309Export guaranteed loans ...................................................................................................... 527,065 394,108 469,616Fund sourced loans .............................................................................................................. 17,922 640,937 600,615Foreign country loans .......................................................................................................... — — 14,718Specialized loans ................................................................................................................ 64,424 9,870 29,018Discount loans .................................................................................................................... 3,113,343 687,310 602,312Other guaranteed loans ........................................................................................................ 18,690 40,712 56,360

––––––––– ––––––––– –––––––––6,480,695 3,496,685 3,584,948

––––––––– ––––––––– –––––––––––––––––– ––––––––– –––––––––Medium- and long-termFinancial institutions............................................................................................................ 753,178 263,340 35,169Export guaranteed loans ...................................................................................................... 417,730 211,300 108,587Foreign country loans .......................................................................................................... 138,681 71,342 72,482Specialized loans ................................................................................................................ 19,012 6,159 3,681Export guaranteed investment loans.................................................................................... 10,550 11,222 12,876Fund sourced loans .............................................................................................................. 3,630 — —Other .................................................................................................................................... 156,854 94,576 86,763

––––––––– ––––––––– –––––––––1,499,635 657,939 319,558

––––––––– ––––––––– –––––––––––––––––– ––––––––– –––––––––Performing loans................................................................................................................ 7,980,330 4,154,624 3,904,506Loans under close monitoring ............................................................................................ 85,289 4,514 4,160Impaired loans and advances .............................................................................................. 114,853 120,776 103,498

––––––––– ––––––––– –––––––––Gross loans and advances to customers .......................................................................... 8,180,472 4,279,914 4,012,164Allowance for loan losses.................................................................................................... (183,258) (173,639) (157,738)

––––––––– ––––––––– –––––––––Net loans and advances to customers .............................................................................. 7,997,214 4,106,275 3,854,426

––––––––– ––––––––– –––––––––––––––––– ––––––––– –––––––––

Distribution of Loans by Sector

The following table sets forth a summary of the Bank’s net loans and advances to customers by principalcategory of economic sector based on outstanding balances, as at 31 December 2011, 2010 and 2009.

As at 31 December–––––––––––––––––––––––––––––––

2011 2010 2009––––––––– ––––––––– –––––––––


Farming and raising livestock.............................................................................................. 137,671 24,701 15,564Forestry ................................................................................................................................ 159 — —Fishing ................................................................................................................................ 577 94 0

––––––––– ––––––––– –––––––––Agricultural ........................................................................................................................ 138,407 24,795 15,564

––––––––– ––––––––– –––––––––Mining ................................................................................................................................ 202,506 43,941 25,862Production............................................................................................................................ 3,534,297 1,268,353 1,225,263Electric, Gas and Water ...................................................................................................... — — —

––––––––– ––––––––– –––––––––Manufacturing .................................................................................................................. 3,736,803 1,312,294 1,251,125

––––––––– ––––––––– –––––––––Construction ...................................................................................................................... 386,595 774,277 600,615

––––––––– ––––––––– –––––––––Wholesale and Retail Trade ................................................................................................ 113,347 31,656 2,685Hotel, Food and Beverage Services .................................................................................... 61,684 4,538 3,377Transportation and Telecommunication .............................................................................. 24,521 14,805 24,298Financial Institutions .......................................................................................................... 3,492,429 1,987,088 1,934,678

––––––––– ––––––––– –––––––––Services .............................................................................................................................. 3,691,981 2,038,087 1,965,038

––––––––– ––––––––– –––––––––Other .................................................................................................................................. 111,833 9,685 76,324

––––––––– ––––––––– –––––––––Total .................................................................................................................................... 8,065,619 4,159,138 3,908,666

––––––––– ––––––––– –––––––––––––––––– ––––––––– –––––––––


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Distribution of Loans by Type of Borrower

The following table sets forth the breakdown of the Bank’s gross loans and advances to customers by typeof borrower and the percentage contribution to the total loan portfolio as at 31 December 2011, 2010 and2009.

As at 31 December–––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––

2011 2010 2009–––––––––––––––––––– –––––––––––––––––––– ––––––––––––––––––––


Public sector loans(1) ...................... 832,133 10% 374,549 9% 366,687 9%Private sector loans ........................ 7,348,339 90% 3,905,365 91% 3,645,477 91%

––––––––– ––––––––– –––––––––Total ................................................ 8,180,472 100% 4,279,914 100% 4,012,164 100%

––––––––– ––––––––– –––––––––

(1) Includes loans granted to foreign government entities

Maturity Profile of the Bank’s Loan Portfolio

The following table sets forth the maturity analysis of loans and advances to customers as at 31 December2011, 2010 and 2009.

ThreeUp to three months to One year to Over five

months one year five years years Total––––––––– ––––––––– ––––––––– ––––––––– –––––––––


31 December 2011...................................................... 3,531,760 3,830,107 635,347 — 7,997,21431 December 2010...................................................... 1,462,815 2,361,072 276,548 5,840 4,106,27531 December 2009...................................................... 1,520,708 2,118,524 207,358 7,836 3,854,426

Geographical Distribution of the Bank’s Loan Portfolio

The following table sets forth the amount of the Bank’s net loans and advances to customers by geographicaldistribution within Turkey’s regions based on the location of the exporter’s business as at 31 December 2011,2010 and 2009.

As at 31 December–––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––

2011 2010 2009–––––––––––––––––––– –––––––––––––––––––– ––––––––––––––––––––


Istanbul Region .............................. 3,941,593 49% 1,794,282 51% 1,753,265 53%Southeastern Anatolia Region ........ 321,763 4% 140,728 4% 99,242 3%Marmara Region (except Istanbul) 563,085 7% 211,092 6% 297,725 9%Black Sea Region .......................... 402,203 5% 175,910 5% 99,242 3%Central Anatolia Region ................ 723,966 9% 387,002 11% 297,725 9%Mediterranean Region .................... 804,406 10% 351,820 10% 231,564 7%Aegean Region .............................. 1,287,051 16% 457,366 13% 496,208 15%Eastern Anatolia Region ................ — — — — 33,081 1%

––––––––– ––––––––– ––––––––– ––––––––– ––––––––– –––––––––TOTAL LOANS(*) ...................... 8,044,067 100% 3,518,200 100% 3,308,052 100%

––––––––– ––––––––– ––––––––– ––––––––– ––––––––– –––––––––––––––––– ––––––––– ––––––––– ––––––––– ––––––––– –––––––––


(*) The table above does not include loans funded by the Development and Support Fund

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Non-Performing Loans and Loans and Advances Under Close Monitoring

The following table sets forth information on the Bank’s impaired loans and advances (non-performingloans) and other loans and advances under close monitoring as at 31 December 2011, 2010 and 2009.

As at 31 December–––––––––––––––––––––––––––––––

2011 2010 2009––––––––– ––––––––– –––––––––


Loans and advances under close monitoring(1) .................................................................... 85,289 4,514 4,160Impaired loans and advances (non-performing loans) ........................................................ 114,853 120,776 103,498

(1) Loans and advances under close monitoring include not only loans that are past due by one to 90 days (amounting to TL 1,003thousand as at 31 December 2011) but also loans that are not yet due that have been extended to customers with other past due loans(amounting to TL 84,286 thousand as at 31 December 2011).

The following table sets forth the breakdown of the Bank’s loans and advances under close monitoring thatwere overdue as at 31 December 2011, 2010 and 2009. As at 31 December 2011, the Bank included in loansand advances under close monitoring, loans that were not yet due that had been extended to customers withother past due loans amounting to TL 84,286 thousand.

As at 31 December–––––––––––––––––––––––––––––––

2011 2010 2009––––––––– ––––––––– –––––––––


Past due up to 30 days ........................................................................................................ 279 4,479 1,351Past due 30-60 days ............................................................................................................ 724 8 605Past due 60-90 days ............................................................................................................ — 27 2,204

––––––––– ––––––––– –––––––––Total .................................................................................................................................... 1,003 4,514 4,160

––––––––– ––––––––– –––––––––––––––––– ––––––––– –––––––––

Movements in the Provision for Loan Losses

The following table sets forth details of movements in the Bank’s provision for loan losses for the yearsended 31 December 2011, 2010 and 2009.

As at 31 December–––––––––––––––––––––––––––––––

2011 2010 2009––––––––– ––––––––– –––––––––


Balance at the beginning of the year .................................................................................. 173,639 157,738 106,992– Recoveries ........................................................................................................................ (8,794) (3,488) (1,593)– Net specific provision for the year .................................................................................. 18,413 19,389 52,339

––––––––– ––––––––– –––––––––Balance at the end of the year .......................................................................................... 183,258 173,639 157,738

––––––––– ––––––––– –––––––––––––––––– ––––––––– –––––––––

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The following table sets forth a summary of the Bank’s securities portfolio (excluding available-for-salesecurities) as at 31 December 2011, 2010 and 2009.

As at 31 December–––––––––––––––––––––––––––––––

2011 2010 2009––––––––– ––––––––– –––––––––


Held-to-Maturity Securities– Turkish Government bonds .............................................................................................. 466,072 747,757 217,855– Turkish Treasury bills ...................................................................................................... 45,364 50,862 41,549– Turkish Eurobonds............................................................................................................ — 93,084 49,664

––––––––– ––––––––– –––––––––Total held-to-maturity securities ...................................................................................... 511,436 891,703 309,068

––––––––– ––––––––– –––––––––––––––––– ––––––––– –––––––––Trading Securities– Turkish Government bonds .............................................................................................. 301,364 304,842 117,917– Turkish Treasury bills ...................................................................................................... — — 28,900– Turkish Eurobonds............................................................................................................ 41,571 3,646 3,332

––––––––– ––––––––– –––––––––Total trading securities...................................................................................................... 342,935 308,488 150,149

––––––––– ––––––––– –––––––––––––––––– ––––––––– –––––––––As at 31 December 2011, the value of trading securities subject to repurchase transactions was TL 230,868,as compared to TL nil as at 31 December 2010.

As at 31 December 2011, government bonds and treasury bills constituting held to maturity securities andtrading securities amounting to TL 182,309 thousand (compared to TL 249,495 thousand as at 31 December2010 and TL 230,413 thousand as at 31 December 2009) had been pledged as collateral with the CBRT andIstanbul Stock Exchange-Settlement and Custody Bank.

The following table sets forth a breakdown of the Bank’s available-for-sale securities as at 31 December2011, 2010 and 2009.

As at 31 December–––––––––––––––––––––––––––––––

2011 2010 2009––––––––– ––––––––– –––––––––


Equity securities– Listed ................................................................................................................................ 8,295 13,202 11,744– Unlisted ............................................................................................................................ 3,000 2,000 2,000

––––––––– ––––––––– –––––––––Total available-for-sale-securities .................................................................................... 11,295 15,202 13,744

––––––––– ––––––––– –––––––––––––––––– ––––––––– –––––––––As at 31 December 2011, the Bank held listed equity securities consisting of a 9.8% share of GarantiFaktoring Hizmetleri A.Ş and a 1.7% share of Kredi Garanti Fonu A.Ş with an aggregate carrying amount ofTL 11.3 million.

Maturity Distribution

Held-to-maturity and trading securities represented 9.0% of the Bank’s total assets as at 31 December 2011,19.3% as at 31 December 2010 and 7.1% as at 31 December 2009.

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The following table sets forth the maturity analysis of the Bank’s held-to-maturity and trading securitiesportfolio (excluding available-for-sale securities) as at 31 December 2011.

As at 31 December 2011––––––––––––––––––––––––––––––––––––––––––––––––––––




Turkish Government bonds ........................................ 243,643 285,052 149,453 88,169 766,317Fixed ............................................................ 243,643 285,052 109,505 — 638,200Floating ........................................................ — — 39,948 88,169 127,117

Turkish Eurobonds...................................................... — — 47,985 40,069 88,054––––––––– ––––––––– ––––––––– ––––––––– –––––––––

Total ............................................................................ 243,643 285,052 197,438 128,238 854,371––––––––– ––––––––– ––––––––– ––––––––– –––––––––––––––––– ––––––––– ––––––––– ––––––––– –––––––––

The following table sets forth the maturity analysis of the Bank’s held-to-maturity and trading securitiesportfolio (excluding available-for-sale securities) as at 31 December 2010.

As at 31 December 2010––––––––––––––––––––––––––––––––––––––––––––––––––––




Turkish Government bonds ........................................ 285,566 374,311 319,952 71,509 1,051,338Fixed ............................................................ 267,507 374,311 275,642 — 917,459Floating ........................................................ 18.059 — 44,310 71,509 133,879

Turkish Treasury bills ................................................ 70,353 23,585 — — 93,939Turkish Eurobonds...................................................... — 14,693 37,073 3,148 54,914

––––––––– ––––––––– ––––––––– ––––––––– –––––––––Total ............................................................................ 355,919 412,588 357,026 74,658 1,200,191

––––––––– ––––––––– ––––––––– ––––––––– –––––––––––––––––– ––––––––– ––––––––– ––––––––– –––––––––

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Risk Concentration

The following table sets forth information on the Bank’s exposure to customers with the twenty largestbalances of outstanding cash loans, which in the aggregate constituted 49% of net loans and advances tocustomers, as at 31 December 2011.

As atBorrower/Debtor 31 December 2011

––––––––––––––––(in thousands of TL)

1. Turkish Financial Institution (Private Bank) .......................................................................................................... 446,9392. Turkish Financial Institution (State Bank).............................................................................................................. 400,5863. Turkish Financial Institution (Private Bank) .......................................................................................................... 388,3364. Turkish Financial Institution (Private Bank) .......................................................................................................... 370,6995. Turkish Financial Institution (Private Bank) .......................................................................................................... 294,1816. Turkish Financial Institution (Private Bank) .......................................................................................................... 215,1117. Turkish Financial Institution (Private Bank) .......................................................................................................... 195,1328. Turkish Financial Institution ( State Bank) ............................................................................................................ 178,7549. Turkish Financial Institution (Private Bank) .......................................................................................................... 172,53910. Turkish Financial Institution (Private Bank) ........................................................................................................ 146,80511. Turkish Financial Institution (Private Bank) ........................................................................................................ 137,52312. Petrochemical Industry.......................................................................................................................................... 116,65413. Foreign Trade Company........................................................................................................................................ 115,53714. Textile Industry .................................................................................................................................................... 115,36015. Foreign Trade Company........................................................................................................................................ 114,47416. Iron and Steel Industry.......................................................................................................................................... 113,58717. Turkish Financial Institution (Private Bank) ........................................................................................................ 111,88618. Turkish Financial Institution (State Bank)............................................................................................................ 106,23319. Turkish Financial Institution (Private Bank) ........................................................................................................ 91,28020. Foreign Trade Company........................................................................................................................................ 83,059

––––––––––––––––TOTAL(*) .................................................................................................................................................................. 3,914,674

––––––––––––––––––––––––––––––––


(*) This table does not include loans funded by the Development and Support Fund.

The following table sets forth information on the Bank’s exposure to customers with the twenty largestbalances of outstanding cash loans, which in the aggregate constituted 52% of net loans and advances tocustomers, as at 31 December 2010.

As atBorrower/Debtor 31 December 2010

––––––––––––––––(in thousands of TL)

1. Turkish Financial Institution (State Bank).............................................................................................................. 233,4512. Turkish Financial Institution (Private Bank) .......................................................................................................... 226,8143. Turkish Financial Institution (Private Bank) .......................................................................................................... 222,6084. Turkish Financial Institution (Private Bank) .......................................................................................................... 180,4135. Turkish Financial Institution (Private Bank) .......................................................................................................... 174,1136. Turkish Financial Institution (Private Bank) .......................................................................................................... 119,5637. Turkish Financial Institution (Private Bank) .......................................................................................................... 104,4148. Turkish Financial Institution (Private Bank) .......................................................................................................... 102,0129. Turkish Financial Institution (State Bank).............................................................................................................. 99,09010. Turkish Financial Institution (Private Bank) ........................................................................................................ 83,94411. Turkish Financial Institution (Private Bank) ........................................................................................................ 82,53512. Turkish Financial Institution (Private Bank) ........................................................................................................ 80,12513. Foreign Trade Company........................................................................................................................................ 75,06414. Turkish Financial Institution (Private Bank) ........................................................................................................ 71,52415. Buyers’ Credit Country ........................................................................................................................................ 60,57016. Iron And Steel Industry ........................................................................................................................................ 51,16517. Iron And Steel Industry ........................................................................................................................................ 46,15418. Iron And Steel Industry ........................................................................................................................................ 46,15419. Foreign Trade Company........................................................................................................................................ 44,88320. Turkish Financial Institution (Private Bank) ........................................................................................................ 44,084

––––––––––––––––TOTAL(*) .................................................................................................................................................................. 2,148,680

––––––––––––––––––––––––––––––––

Source: Statutory Financial Statement

(*) This table does not include loans funded by the Development and Support Fund.

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The following table sets forth the twenty countries that represented the largest risk exposures under theBank’s export credit insurance programs, which in the aggregate constituted 75% of total insuranceexposure, as at 31 December 2011.

As at 31 December 2011–––––––––––––––––––––––––––––––

Political Commercial Risk Country Risk Risk Exposure

––––––––– ––––––––– –––––––––(USD)

1. Germany .......................................................................................................................... 52,054 35,854,303 35,906,3572. Italy.................................................................................................................................. 0 21,141,749 21,141,7493. England............................................................................................................................ 0 19,641,321 19,641,3214. France .............................................................................................................................. 0 17,702,531 17,702,5315. Spain ................................................................................................................................ 0 10,190,837 10,190,8376. USA ................................................................................................................................ 0 9,101,994 9,101,9947. Israel ................................................................................................................................ 10,251 8,173,371 8,183,6228. China................................................................................................................................ 2,400,264 5,317,007 7,717,2719. Romania .......................................................................................................................... 0 7,499,501 7,499,50110. Sweden .......................................................................................................................... 0 6,917,717 6,917,71711. Holland .......................................................................................................................... 0 6,628,382 6,628,38212. Greece(1) ........................................................................................................................ 0 6,516,123 6,516,12313. Poland ............................................................................................................................ 0 6,254,081 6,254,08114. Belgium ........................................................................................................................ 0 6,209,237 6,209,23715. Bulgaria ........................................................................................................................ 0 6,011,312 6,011,31216. Switzerland .................................................................................................................... 7,525 5,587,317 5,594,84217. Saudi Arabia .................................................................................................................. 28,202 4,329,291 4,357,49318. Austria............................................................................................................................ 0 3,952,762 3,952,76219. Egypt.............................................................................................................................. 35,845 3,880,978 3,916,82320. United Arab Emirates .................................................................................................... 422,130 3,371,963 3,814,094

––––––––– ––––––––– –––––––––2,956,271 194,281,777 197,258,049

––––––––– ––––––––– –––––––––––––––––– ––––––––– –––––––––

Source: Internal accounts

(1) This exposure relates to private sector Greek importers, not Greek sovereign debt.

The following table sets forth the twenty countries that represented the largest risk exposures under theBank’s export credit insurance programs, which in the aggregate constituted 73% of total insuranceexposure, as at 31 December 2010.

As at 31 December 2010–––––––––––––––––––––––––––––––

Political Commercial Risk Country Risk Risk Exposure

––––––––– ––––––––– –––––––––(USD)

1. Germany .......................................................................................................................... 22,757 31,335,414 31,358,1712. England............................................................................................................................ 0 18,370,744 18,370,7443. Italy.................................................................................................................................. 0 17,920,010 17,920,0104. France .............................................................................................................................. 0 15,808,115 15,808,1155. Spain ................................................................................................................................ 0 11,049,184 11,049,1846. Romania .......................................................................................................................... 0 8,391,322 8,391,3227. Israel ................................................................................................................................ 234,875 8,226,507 8,461,3838. USA ................................................................................................................................ 0 8,077,281 8,077,2819. Greece.............................................................................................................................. 21,666 6,882,965 6,904,63110. Egypt.............................................................................................................................. 16,052 6,550,862 6,566,91411. Holland .......................................................................................................................... 0 6,159,090 6,159,09012. Bulgaria ........................................................................................................................ 0 5,518,977 5,518,97713. Belgium ........................................................................................................................ 0 5,375,790 5,375,79014. Poland ............................................................................................................................ 0 5,209,287 5,209,28715. Sweden .......................................................................................................................... 0 5,193,790 5,193,79016. Switzerland .................................................................................................................... 740 5,149,641 5,150,38017. China.............................................................................................................................. 2,583,367 4,745,565 7,328,93118. Hong Kong .................................................................................................................... 0 3,556,258 3,556,25819. Saudi Arabia .................................................................................................................. 594,000 3,390,389 3,984,38920. Portugal.......................................................................................................................... 0 3,305,536 3,305,536

––––––––– ––––––––– –––––––––TOTAL ................................................................................................................................ 3,473,457 180,216,725 183,690,182

––––––––– ––––––––– –––––––––––––––––– ––––––––– –––––––––

Source: Internal accounts

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Return on Assets and Equity

The following table sets forth certain financial information for the Bank as at and for the years ended 31December 2011, 2010 and 2009.

As at or for the year ended 31 December

–––––––––––––––––––––––––––––––2011 2010 2009

––––––––– ––––––––– –––––––––(in thousands of TL, except percentages)

Net Profit ............................................................................................................................ 230,256 256,221 342,488Average Total Assets .......................................................................................................... 7,198,832 6,205,760 5,955,890Average Shareholders’ Equity ............................................................................................ 3,648,048 3,651,758 3,299,190Return on Average Assets (Net Profit / Average Total Assets)............................................ 3.19% 4.13% 5.75%Return on Average Equity (Net Profit / Average Equity).................................................... 6.31% 7.02% 10.38%Earnings per Share .............................................................................................................. 0.1151 0.1281 0.1921Equity to Assets Ratio (Average Equity / Average Total Assets) ........................................ 50.68% 58.84% 55.39%


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BUSINESS

Introduction

The Bank, which is organized as a joint stock company, is the official export credit agency of Turkey. As setforth in Cabinet Decree No. 87/11914 of 21 August 1987 (the “Decree”), the Bank was organized for thepurposes of “the improvement of exports, diversification of exported goods and services, causing exportationto enter into new markets, increasing share of exporters in international trade, extending them such supportin their ventures as shall be necessary, providing exporters and overseas contractors with support forincreasing the competitiveness and security in international markets and supporting and encouragingoverseas investments and production and sale of export-oriented capital goods.” In order to advance theseaims, the Bank provides loans, guarantees and insurance, principally to Turkish exporters. The Bank iswholly-owned by the Undersecretariat of Treasury and the Decree provides that the Treasury must retain amajority of the Bank’s shares. The Bank’s chartering law provides that the Undersecretariat of Treasury isrequired to cover losses incurred by the Bank in its credit, insurance and guarantee transactions arising frompolitical risk (such as transfer restrictions, foreign exchange restrictions or war), although the Bank bears allcredit risk in connection with such transactions. The Bank offers its programs out of its headquarters inAnkara and its branch offices in Istanbul and Izmir. The Bank currently plans to commence operations at anew headquarters in Istanbul in August 2012, following an amendment to its Articles of Association inNovember 2011 which provided for a relocation of the Bank’s headquarters to Istanbul within two years.During the migration period, the Bank’s headquarters will remain in Ankara.

The Bank estimates that in the year ended 31 December 2011, based on aggregate Turkish exports of USD134.5 billion (as reported by the Turkish Exporters Assembly), that it provided financial support forapproximately 9.2% of total Turkish exports, as compared to 7.8% of aggregate exports in 2010. Althoughthere was a slump in exports in 2009 due to the global financial crisis, in the past seven years Turkish exportshave grown from an aggregate of USD 73.5 billion in 2005 to USD 134.5 billion in 2011.

The Bank provides four main export finance related products: short-term credits, medium and long-termcredits, guarantees and insurance. Its most significant product is short-term loans, which as at 31 December2011 accounted for 81% of its total outstanding loans (and 84% of its total outstanding loans as at 31December 2010). The textile and ready-to-wear sector accounted for the largest proportion by volume oftotal short-term loans at 24%, followed by the iron and steel sector at 21% and the food, agriculture andlivestock sector at 13% of the total, for the year ended 31 December 2011. However, the Bank’s strategy isto shift from short-term lending to a mix of short term and medium- and long-term lending as well asfocusing on buyer credit programs in international markets. Additionally, in 2011, the Bank started offeringforeign currency options to assist Turkish exporters with managing exchange rate risks.

The Bank is an important instrument in the implementation of Turkey’s economic policy, which since 1980has focused on export-led economic growth, rather than focusing on maximizing profits. The state canexercise its influence over the Bank through its control of the Bank’s Supreme Advisory and Credit GuidanceCommittee and through the appointment of the Bank’s Board of Directors. See “Risk Factors—Risk FactorsRelating to the Bank—The Bank receives periodic contributions of capital and certain other transfers ofmonies from the Treasury to meet its funding needs.” This Committee approves the Bank’s annual programs,as well as the Bank’s general strategy, targeted annual volumes and key objectives for each year. For 2011,the Bank set its target to provide USD 10.9 billion in financial support to the export sector, consisting of USD5.1 billion in the form of cash loans and USD 5.8 billion in the form of insurance and guarantees and equalto 9.2% of total exports for 2011. As at 31 December 2011, the Bank had exceeded its target and hadprovided USD 12.4 billion in financial support to Turkish exporters through its credit, insurance andguarantee programs. The Bank’s 2012 Annual Program was approved in February 2012. For 2012, the Bankaims to provide USD 20.5 billion in financial support to the export sector, consisting of USD 12.0 billion inthe form of cash loans and USD 8.5 billion in the form of insurance and guarantees, equal to 13.8% of thecurrent target for total exports of USD 148.5 billion for 2012. As at 29 February 2012, the Bank had providedUSD 2.8 billion in financial support to Turkish exporters through its credit, insurance and guaranteeprograms during 2012.

75

The long-term debt of the Bank has been rated by Moody’s and Standard & Poor’s since 1997. The foreignand local currency ratings assigned by Standard & Poor’s are BB and BBB -, respectively, which is thesovereign ceiling and the same as that of the Undersecretariat of Treasury. Moody’s, on the other hand,assigned a Ba1 rating to the Bank, which is also the sovereign ceiling for Turkey and one notch higher thanthe Ba2 rating it assigned to the Undersecretariat of Treasury. Both Standard & Poor’s and Moody’s gave theBank a “positive” outlook in February 2010 and October 2010, respectively. However, the Bank’s Ba1foreign currency issuer and long-term senior unsecured debt ratings were placed under review on 16 March2012 for a possible downgrade by Moody’s because of a change in methodology.

Strengths

The Bank believes it has the following competitive strengths:

State-ownership and support. The Bank is wholly-owned by the state of Turkey. The Undersecretariat ofTreasury currently owns 100% of the Bank’s shares and, pursuant to the law under which the Bank wasestablished, must retain at least 51% ownership of the Bank. Additionally, the state provides support to theBank in a variety of ways. The government has in the past regularly injected capital into the Bank, eitherdirectly to paid-in capital or to specific funds that are managed by the Bank and are incorporated into its totalequity. The zero cost of funding of this capital allows the Bank to provide exporters with Turkish Lira-denominated credit at below market rates. The state also provides indemnification for political risk andguarantees the ultimate recovery of losses in the case of concessional credits granted by the Bank to certaincountries deemed strategically important by the Turkish government (currently there are no concessionalcredits outstanding). This is expected to become more important as the Bank expands its buyer’s creditprogram into new markets for Turkish exports. In addition, the Bank is currently exempt from corporateincome tax, stamp tax and Central Bank reserve requirements. Such government support increases theBank’s competitiveness in the Turkish export finance market and helps to maintain its well-establishedposition as the leader in the Turkish market.

Leading provider of export finance in Turkey. The Bank is the leading provider of export finance in Turkeyand as the Turkish economy and exports grow, the Bank expects further opportunities to grow its loanportfolio. The Bank provided financial support for 9.2% of Turkish exports in 2011 through its exportfinance-related products. In 2011, Turkey’s exports increased by 18.5% and the total value of Turkish exportsreached USD 134.5 billion, while Turkey’s GDP increased by 8.5% as compared to 2010. Since the 1980s,successive Turkish governments have focused on export-led economic growth and as Turkey’s official exportcredit agency, the Bank has played a central role in that government policy. The Bank expects it will continueto be a major instrument for the government’s policies as Turkey focuses on improving its current accountbalance.

Diverse range of products. The Bank’s export finance-related programs include not only export credit butalso export credit insurance and buyer credit and guarantee programs. Through its export credit programs,the Bank offers both short-term and medium- to long-term credit to exporters. The Bank also offers specificcredit programs for small and medium enterprises, businesses located in priority development areas,shipbuilders and tourism companies, amongst others. The Bank is able to create tailored products to meetnew demand or implement new strategies. For example, the Bank believes that, in the long term, overseasconstruction and investment will play an important role in increasing Turkey’s foreign currency earnings soit has developed a special program to provide assistance for the construction of department stores overseaswhich are also intended to support exports of consumer goods.

Strong financial position. The Bank maintains a high capital adequacy ratio, driven by the capitalcontributions from the Turkish Treasury and retained earnings. As at 31 December 2011, the Bank’s capitaladequacy ratio was 95.9% (under Basel I). Additionally, the Bank seeks to mitigate credit risk by taking ononly Turkish commercial bank risk and no exporter risk through its indirect lending program for short-termcredit, which is one of the Bank’s largest programs and does not extend new loans unless collateralized (witha Turkish commercial bank guarantee or otherwise). The Bank also requires Turkish commercial bankguarantees under many of its direct lending programs. With respect to provisioning policies, the Bankpursues a conservative approach.

76

Strategy

The Bank’s overall strategic goal is to augment the export capacity of high quality Turkish products andservices and continue to support Turkish exporters as Turkey’s official export credit agency. It intends toachieve this goal by continuing to implement the following key strategies:

Substantially grow cash and non-cash lending; increase share of medium and long-term programs.Currently, the Bank is principally engaged in providing short-term export financing to Turkish exporters.Going forward, the Bank plans to gradually change the focus of its activities to include a greater proportionof medium- and long-term cash and non-cash loan programs and guarantees and substantially increase itsoverall volume of activity. In the future, the Bank plans to leave short-term export financing to commercialbanks and to focus more on medium-term loan facilities, as well as guarantees and insurance activities thatgenerate fees and commissions.

Support diversification of export markets and products. The Bank is focused on achieving product andcountry diversification of Turkish exports as well as increasing the share of Turkish exporters in internationaltrade. Other objectives include developing new export markets through buyer’s credit and similar programsand providing support and risk management options for Turkish exporters, investors and overseascontractors. The Bank seeks to diversify and expand its activities in order to encourage Turkish exports andeconomic growth as set forth in the Turkish government’s economic policy. The Bank’s overall volume offinancial support to Turkish exporters through its credit, insurance and guarantee programs has grown fromUSD 8.9 billion in 2010 to USD 12.4 billion in 2011, and the Bank intends to continue to grow rapidly bysupporting increasing levels of Turkish exports.

Alignment with Government development strategy. The Turkish government’s 2012 government programseeks to ensure sustainable growth, reduce the current account deficit, increase employment and achieve andmaintain a single-digit inflation rate. The Bank’s strategies take into account such goals and the Bank aimsto contribute to building a positive image of Turkish products in the international markets by providing creditprograms that meet exporters’ needs. The Bank also provides certain credit programs and benefits that aretargeted at assisting small and medium enterprises and government-designated priority development regions.In addition, the Bank places importance on its Country Credit/Guarantee Program (a buyer’s credit/guaranteescheme) with key trading partners in Asia and Africa.

History

The Bank was created in its present form on 21 August 1987 by the Decree, which applied Law No. 3332 ofthe Republic (the “Law”). The Law and the Decree provided for the reorganization of the Bank’spredecessor, the State Investment Bank (the “SIB”), as a joint stock company with limited liability. The SIBhad been established in 1964 and attached to the Ministry of Finance under Law No. 441, and had beenresponsible for lending operations to Turkish state economic enterprises. The SIB officially changed its nameto Türkiye İhracat Kredi Bankası A.Ş. on 21 August 1987.

Ownership and Capital Structure

The authorized share capital of the Bank consists of 2 billion shares par value TL 1.0 million per share (the“Shares”), comprising two classes of shares: 1,020,000,000 Class A Shares (or 51% of the total Shares) and980,000,000 Class B Shares (or 49% of the total Shares). As at the date hereof, the Bank’s total share capitalis TL 2 billion. The Class A Shares and Class B Shares entitle the holders thereof to one vote per Share inmatters to be decided by the shareholders of the Bank.

All of the Shares are currently held by the Undersecretariat of Treasury. Under the Decree, the Class AShares may not be transferred by the Treasury, while the Class B Shares may be transferred to any public orprivate bank or similar financial institution, insurance companies or any other real persons (including thegeneral public) and legal entities. Further, the Decree requires that at all times the Class A Shares mustcomprise not less than 51% of the total shares outstanding.

77

Relationship with the Turkish State

The Bank is a major instrument of Turkish government policy to promote Turkish exports and indirectly tobolster the Turkish economy. The Undersecretariat of Treasury has provided the Bank with regular capitalcontributions and other payments. See “Management’s Discussion and Analysis of Financial Condition andResults of Operations—Shareholders’ Equity.” As a state-owned bank, the Bank can take advantage ofcertain benefits such as exemption from corporate income tax and some of the rules and regulation of theBRSA. Because the Bank is wholly owned by the Treasury, the Bank is subject to the control of the state andeach successive government.

Under Article 4(C) of the Decree, which established the Bank, the Treasury is obliged to meet any lossesincurred by the Bank in its credit, insurance, and guarantee transactions as a result of political risks. TheBank has, generally, attempted to reschedule overdue loans due to political risk before makingreimbursement claims from the Treasury. The Treasury must include the amount of any reimbursementclaims from the Bank in the proposed budget for the following year and the amount may only be paid outafter the budget is approved. As a result of the procedures for collecting on this indemnity in the event thata borrower fails to pay, the Bank may experience delays in payment as it must notify the Treasury of all loansthat are past due and any relevant insurance or guarantees in September of each year.

Banking Activities

The Bank’s principal services fall into a number of categories broadly represented by the Bank’s internalorganization and structure. These services are export credits, which can be further categorized into short-termcredits and medium- to long-term credits (including buyers’ credits), and insurance and guarantees.

The following chart shows the Bank’s organizational structure as at the date of this Offering Memorandum.

While all Turkish companies are eligible for the Bank’s services, priority is given to all credit applicationsfrom small- and medium-enterprises (“SMEs”) and companies located in certain economically

TURK EXIMBANK ORGANIZATION CHART

BOARD OFDIRECTORS

General Manager

Legal Division

Audit Committee

Internal Audit

Risk Management

Internal Control

Legal Department

RegulationsDepartment

Deputy General Manager– Credits –

Pre-ShipmentExport Credit

Performance Related ExportCredits Division

Specific Credits Division

Istanbul Branch

İzmir Branch

Insurance & GuaranteeDepartment

Economic ResearchesDivision

Accounting Transaction& Reporting Division

Information TechnologyDivision

Social Affairs &Communications Division

Buyers’ Credit Division

Buyers’ Credit I Division

Buyers’ Credit II Division

Insurance & GuaranteeDepartment

Claims Department

Recovery Department

Underwriting Department I

Underwriting Department II

M/L Term InsuranceGuarantee & Reinsurance

Department

Pre-Shipment ExportCredit Department

Performance Related ExportCredits II Department

Specific Credits IDepartment

Specific Credits IIDepartment

Credit Risk MonitoringDepartment

Marketing & ProductDevelopment Department

Contact Offices

Performance Related ExportCredits I Department

Foreign Trade CompaniesST Export Credits

Treasury Department Research Department

Accounting Transaction& Reporting Division

Budget & PaymentsDepartment

Financial PlanningDepartment

Treasury OperationDepartment

Information & CompanyAnalysis Department

Funding Department

Bank AnalysisDepartment

IT Department

System DevelopmentDepartment

Purchasing & TransportDepartment

Social Affairs & InternalServices Department

Public RelationsDepartment

CommunicationsDepartment

Human ResourcesDepartment

Verification Committee

Treasury Division

Finance Department

Risk Analysis &Evaluation Division

Deputy General Manager– Insurance –

Deputy General Manager– Buyers’ Credit –

Deputy General Manager– Finance –

Deputy General Manager– Coordnation –

Deputy General Manager– IT/Support –

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underdeveloped provinces located in the southern or south-eastern regions of Turkey which are designatedas priority development areas (“PDAs”).

The following table sets forth a summary of the relative contributions to gross interest income by each of theBank’s main lending programs for the years ended 31 December 2011, 2010 and 2009, respectively. Theinformation set forth below has been derived from the Bank’s Statutory Financial Statements.

For the year ended 31 December–––––––––––––––––––––––––––––––––––––––––

2011 2010 2009–––––––––––– –––––––––––– ––––––––––––

Short Term LoansIndirect Lending:Pre-Shipment Export Credits:TL ........................................................................................................................................ 41.1% 49.2% 58.1%FX ........................................................................................................................................ 13.3% 14.3% 11.1%

–––––––––––– –––––––––––– ––––––––––––Sub-Total ............................................................................................................................ 54.4% 63.5% 69.2%

–––––––––––– –––––––––––– ––––––––––––Direct Lending:Foreign Trade Companies Export Credits:TL ........................................................................................................................................ 4.1% 6.9% 9.0%FX ........................................................................................................................................ 0.2% 0.0% 0.8%

–––––––––––– –––––––––––– ––––––––––––Sub-Total ............................................................................................................................ 4.3% 6.9% 9.8%

–––––––––––– –––––––––––– ––––––––––––Export Preparation Credits:TL ........................................................................................................................................ 3.8% 5.0% 7.7%FX ........................................................................................................................................ 2.9% 3.7% 2.2%

–––––––––––– –––––––––––– ––––––––––––Sub-Total ............................................................................................................................ 6.7% 8.7% 9.9%

–––––––––––– –––––––––––– ––––––––––––Special Credit Programs:Short-Term Export Receivables Discount Program .......................................................... 0.0% 0.0% 0.0%Tourism Credit Program:TL ........................................................................................................................................ 0.1% 0.0% 0.1%FX ........................................................................................................................................ 0.2% 0.0% 0.1%

–––––––––––– –––––––––––– ––––––––––––Sub-Total ............................................................................................................................ 0.3% 0.0% 0.2%

–––––––––––– –––––––––––– ––––––––––––Rediscount Program: TL ........................................................................................................................................ 2.7% — —FX ........................................................................................................................................ 6.0% 5.0% 4.1%Sub-Total ............................................................................................................................ 8.7% 5.0% 5.0%Country Credits and Guarantees.......................................................................................... 0% 0.7% 0.1%Other .................................................................................................................................... 1.5% 1.8% 1.7%Medium-and Long Term LoansCountry Credits and Guarantees.......................................................................................... 2.0% 1.7% 0.8%Pre-Shipment Export Credits:(1) ..........................................................................................TL ........................................................................................................................................ 7.0% 2.0% —FX ........................................................................................................................................ 4.1% 1.4% 1.4%

–––––––––––– –––––––––––– ––––––––––––Sub-Total ............................................................................................................................ 11.1% 3.4% 1.4%

–––––––––––– –––––––––––– ––––––––––––Export Preparation Credits:(1)

TL ........................................................................................................................................ 1.6% 0.4% —FX ........................................................................................................................................ 1.6% 0.7% 0.7%

–––––––––––– –––––––––––– ––––––––––––Sub-Total ............................................................................................................................ 3.2% 1.1% 0.7%

–––––––––––– –––––––––––– ––––––––––––Export Finance Intermediation Loan (EFIL-IV) ................................................................ 2.2% 2.0% 0.3%Bridge Credit Program for Overseas Contractor Services .................................................. 5.2% 4.9% 1.5%Other .................................................................................................................................... 0.4% 0.3% 0.3%

–––––––––––– –––––––––––– ––––––––––––Total (*) .............................................................................................................................. 100% 100% 100%

–––––––––––– –––––––––––– –––––––––––––––––––––––– –––––––––––– ––––––––––––


(*) Includes only interest income earned by the Bank on loans

(1) Medium- and long-term TL loans under the Pre-Shipment Export Credit Program and Export Preparation Credit Program did not existuntil 2010.

The following table sets forth a summary of the relative contributions to fees and commissions and otheroperating income by each of the Bank’s insurance and other related products or services for the years ended

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31 December 2011, 2010 and 2009, respectively. The information set forth below has been derived from theBank’s Statutory Financial Statements.

For the year ended 31 December–––––––––––––––––––––––––––––––––––––––––

2011 2010 2009–––––––––––– –––––––––––– ––––––––––––

Fees and CommissionsCountry Credits and Guarantees.......................................................................................... 9.4% 1.3% 5.5%Commissions from reinsurance of insurance facilities(1) .................................................. 15.3% 17.6% 16.0%Short-term export credit insurance premiums(2) ................................................................ 58.0% 65.2% 63.8%Income from banking services ............................................................................................ 0.4% 0.5% 0.6%Other .................................................................................................................................... 17.0% 15.4% 14.1%

–––––––––––– –––––––––––– ––––––––––––Total commissions and revenues received ...................................................................... 100% 100% 100%

–––––––––––– –––––––––––– –––––––––––––––––––––––– –––––––––––– ––––––––––––


(1) Commissions paid back to the Bank by re-insurers at the year end and recorded as other operating income in the IFRS FinancialStatements.

(2) Fees received from insurance policies issued by the Bank and recorded as other operating income in the IFRS Financial Statements.

The table set forth below shows the breakdown of the outstanding balances and the proportion of the Bank’stotal loan portfolio, by short-term and medium- and long-term loans, as at 31 December 2011, 2010 and2009, respectively. The information set forth below has been derived from the Bank’s Statutory FinancialStatements.

As at 31 December–––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––

2011 2010 2009–––––––––––––––––––––––––– –––––––––––––––––––––––––– ––––––––––––––––––––––––––


Short-term loans ............................ 6,510,302 80.7% 3,501,197 84.2% 3,588,431 91.8%Medium and long-term loans ........ 1,555,317 19.3% 657,941 15.8% 320,235 8.2%

––––––––––– ––––––––––– ––––––––––– ––––––––––– ––––––––––– –––––––––––Total .............................................. 8,065,619 100% 4,159,138 100% 3,908,666 100%

––––––––––– ––––––––––– ––––––––––– ––––––––––– ––––––––––– –––––––––––––––––––––– ––––––––––– ––––––––––– ––––––––––– ––––––––––– –––––––––––

Source: Statutory Financial Statements.

Short-Term Export Credits

Loans under the Bank’s short-term export credit programs accounted for, in the aggregate, 80.7%, 84.2% and91.8% of its total loans as at 31 December 2011, 2010 and 2009, respectively. Credits with a maturity of upto 360 days are classified as short-term export credits whereas credits up to 540 days are classified asmedium- and long-term credits. The Bank’s main short-term export lending programs are outlined asfollows:

• Indirect Lending (through intermediary commercial banks)

• Pre-Shipment Export Credit Program—Turkish Lira (“PSEC-TL”), which includes:

• PSEC-Pre-Shipment SMEs Export Credit Program

• PSEC-Priority Development Areas (“PSEC-PDA”) Export Credit Program

• Pre-Shipment Export Credit Program—Foreign Currency (“PSEC-FX”)

• Direct Lending

• Foreign Trade Companies Short-Term Export Credits Program

• Foreign Trade Companies Turkish Lira Credit Program

• Foreign Trade Companies Foreign Currency Credit Program

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• Export Preparation Credit Programs

• Export Preparation Turkish Lira Credit Program

• Export Preparation Foreign Currency Credit Program

• Special Credit Programs

• Short-Term Export Receivables Discount Program

• Short-Term Rediscount Program

• Tourism Credit Program

• International Transportation Marketing Credit Program

The following table sets forth the amount of the outstanding balance for each of the Bank’s short-term loanproducts and its proportion of the total outstanding loan balance. The information set forth in the table hasbeen derived from the Bank’s Statutory Financial Statements.

As at 31 December–––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––

2011 2010 2009–––––––––––––––––––––––––– –––––––––––––––––––––––––– ––––––––––––––––––––––––––


Pre-Shipment Export Credits-TL .. 1,420,135 17.6% 946,284 22.8% 976,252 25.0%Pre-Shipment Export Credits-FX .. 1,319,118 16.4% 777,462 18.7% 836,055 21.4%Foreign Trade Companies Short-

term Export Credit Program-TL 75,382 0.9% 132,586 3.2% 150,765 3.9 %Foreign Trade Companies Short-

term Export Credit Program-FX 22,130 0.3% 3,088 0.1% 5,188 0.1%Export Preparation Credits

Program-TL ................................ 175,345 2.2% 89,744 2.2% 110,186 2.8%Export Preparation Credits

Program-FX................................ 251,257 3.1% 172,491 4.1% 196,058 5.0%Short-term Export Receivables

Discount Program ...................... 0 0.0% 0 0.0% 1,483 0.0%Tourism Credit Program -TL ........ 11,633 0.1% 283 0.0% 368 0.0%Tourism Credit Program-FX ........ 44,309 0.5% 4,255 0.1% 2,739 0.1%Rediscount Credit Program-TL ...... 363,999 4.5% — — — —Rediscount Credit Program-FX...... 2,749,344 34.1% 687,309 16.5% 600,830 15.4%SME Export Preparation Credits

Program-TL ................................ 1,961 0.024% 574 0.014% 1,311 0.0%SME Export Preparation Credits

Program-FX................................ 991 0.012% 140 0.003% 146 0.0%International Transportation

Marketing Program -TL ............ 2,618 0.032% 3,283 0.079% 6,546 0.2%International Transportation

Marketing Program -FX ............ 5,863 0.073% 2,048 0.049% 15,558 0.4%Fund Sourced Loans(*) .................. 17,922 0.22% 640,938 15.41% 600,614 15.4%Credit Program for Participating in

Overseas Trade Fairs-TL ............ — — 732 0.018% 1,269 0.0%Bridge Credit Program for Overseas

Contractors Services-TL ............ 1,851 0.023% — — — —Bridge Credit Program for Overseas

Contractors Services-FX ............ 46,407 0.57% 39,961 0.96% 55,406 1.4%Country Credits .............................. — — — — 14,718 0.4%Other Specific Export Credit

Programs .................................... 37 0.0004% 19 0.00% 12,939 0.3%––––––––––– ––––––––––– ––––––––––– ––––––––––– ––––––––––– –––––––––––

Total .............................................. 6,510,302 80.7% 3,501,197 84.2% 3,588,431 91.8%––––––––––– ––––––––––– ––––––––––– ––––––––––– ––––––––––– –––––––––––––––––––––– ––––––––––– ––––––––––– ––––––––––– ––––––––––– –––––––––––

(*) Loans funded by the Development and Support Fund, a fund created in 1991 during the Gulf Crisis by the Turkish Treasury to providesupport to Turkish contractors who had been conducting business in Iraq. The Bank acted as the Turkish Treasury’s agent in disbursingthe funds and continues to be the collections agent and bears no credit risk.

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Funding for the Bank’s short-term TL-denominated export credits is entirely through the Bank’s capital andfrom internally generated cash. As a result, the Bank’s cost of funds for its TL-denominated short-term loansis zero. Funding for the Bank’s short-term foreign currency-denominated export credits is principally fromborrowings from commercial banks at market rates.

Exporters seeking pre-shipment financing must produce an order or other evidence that the Turkishmanufacturer intends to sell and ship the goods to a foreign buyer (an “export commitment”). Uponrepayment of the loan, the exporter must provide a copy of the customs declaration as proof that it fulfilledits export commitment. If the exporter cannot prove that it exported the products against which the fundswere lent, then the exporter must pay a penalty equal to 1.2 times the interest rate of the loan plus theBanking and Insurance Transaction Tax and the Resource Utilization and Support Fund levy. Normally as anexport incentive, the state does not require exporters to pay these taxes.

Since 1997, reduced interest rates for short-term export credits have been made available to short-term exportcredit insurance policyholders.

All of the Bank’s short-term credits are either to Turkish commercial banks (who bear the counterparty creditrisk) or are supported by commercial bank guarantees. In certain cases, additional collateral or security inthe form of Treasury bonds or bills is also required. See “Risk Management.”

In 2011, the majority (approximately 65%) of the Bank’s short-term credits, in terms of credit volume,related to shipments to European Union countries, North America and Japan, with the balance going to theMiddle East and Northern Africa (approximately 19%), other European countries (approximately 6%) andthe rest of the world (approximately 10%). Below is a discussion of the Bank’s main short-term lendingprograms.

Indirect Lending

The Bank’s indirect lending programs provide financing to meet the working capital needs of Turkishexporters. Presently, the programs operate through 44 of Turkey’s 48 banks which in turn on-lend to Turkishexporters who comply with the lending criteria established by the Bank. The Bank has screened these banksfor credit worthiness and reassesses such credit worthiness on a quarterly basis to determine whether thesebanks may continue to offer loans through the Bank’s Pre-Shipment Export Credit Programs. The Bankmakes loans to the commercial banks and the commercial banks bear the default risk of the exporters undersuch loans. For further information, see “Risk Management.” While the bulk of the loans under the indirectlending programs have a maturity of less than 360 days, those with a longer maturity are classified asmedium- to long-term loans.

As at 31 December 2011, 2010 and 2009, approximately 42%, 49% and 51%, respectively, of the Bank’stotal short-term export credit lending volumes were extended via selected Turkish banks in the Bank’sindirect lending programs. As at 31 December 2011, the four largest exposures to such banks (for both short-term credits and medium- to long-term credits) were approximately 13%, 12%, 11% and 10% of the total ofsuch exposures, respectively, with none of the remaining banks accounting for more than 10%.

Pre-Shipment Export Credit Program—Turkish Lira

Under the PSEC-TL Program, the Bank extends TL-denominated loans to Turkish commercial banks that inturn provide working capital loans to Turkish manufacturers who intend to export their products. The Turkishmanufacturer may use the monies lent to purchase raw materials and machinery or to meet othermanufacturing requirements. The PSEC-TL loans offered by the Bank are designed to provide financialsupport from the early stages of production against a definite export commitment. The Bank offers loansunder this program with a maturity of up to 540 days.

The interest rates charged by the Bank for loans under this program are fixed rates that are determined basedon the maturity of the loans and the amount of the loan. As the Bank’s cost of funding for its TL-denominatedshort-term export credits is very low, the interest rates that the Bank sets on such products are typically belowthe comparable market rates offered by Turkish commercial banks. Additionally, exporters who are also

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short-term credit insurance policy holders of the Bank receive a discount of 50 basis points from the standardinterest rate charged by the Bank. The commercial banks, to which the Bank has lent money, determine what,if any, collateral the Turkish manufacturer will have to provide in connection with the loans in this programsince such commercial banks bear the default risk for such loans.

The Bank limits each loan under the PSEC-TL Program to no more than USD 15 million per exporter and,in addition, each loan may not exceed an amount equal to 100% of the value of the manufacturer’s exportcommitment.

For the years ended 31 December 2011 and 2010, respectively, the Bank had lent TL 2,442 million tointermediary banks (which had on-lent the proceeds to 1,539 exporters) and TL 1,889 million to intermediarybanks (which had on-lent the proceeds to 1,093 exporters) under its PSEC-TL Program. The PSEC-TLProgram includes, but is not limited to, the Pre-Shipment SMEs Export Credit Program and the PSEC-PDAProgram. Under the PSEC-TL Program, each participating intermediary bank must reserve at least 30% ofthe PSEC-TL funds lent to it for lending to SMEs and must extend loans to borrowers in the PDAs, in anamount not less than 5% of their lending limit.

Pre-Shipment Small- and Medium-Scale Enterprises Export Credit Program

Loans under the Pre-Shipment SMEs Export Credit Program represented 50%, 49% and 52% of the Bank’stotal PSEC-TL loan portfolio as at 31 December 2011, 2010 and 2009, respectively. For purposes of thisprogram, according to the definition that was revised in 2005, SMEs are defined as businesses in Turkey withup to 250 employees and net sales revenue or total assets of less than TL 25 million and which are not morethan 25% controlled by or under common control with another company that is not an SME.

Pre-Shipment Priority Development Areas Export Credit Program

The PSEC-PDA Program encourages exports from businesses located in the PDAs. The interest rates for theloans under the PSEC-PDA Program are the same rates as the rates applied in the PSEC-TL program.

Pre-Shipment Export Credit Program—Foreign Currency

The Pre-Shipment Export Credit Program—Foreign Currency is similar in many respects to the PSEC-TLProgram except that the Bank makes foreign currency-denominated loans to commercial banks which in turnprovide foreign currency-denominated working capital loans to Turkish manufacturers who intend to exporttheir products.

Under the PSEC-FX Program, the Turkish manufacturer may use the monies lent to purchase raw materials,machinery or other manufacturing requirements. PSEC-FX loans offered by the Bank are designed toprovide financial support from the early stages of production against the definite export commitment ofdefinite exportation. These foreign currency loans are in U.S. Dollars, Euros, Pound Sterling, and, from timeto time, Japanese Yen (particularly with respect to Turkish steel exporters).

The Bank limits loans under this program to no more than USD 15 million per borrower. Under this program,no loan may exceed the value of the export commitment. The Bank offers loans under this program for amaturity of 540 days.

The PSEC-FX Program offers interest rates which are determined according to the maturity and a company’soutstanding loan balance. The interest rates under this program are calculated based on four- or six-monthLIBOR (according to the maturity of the loan) plus a spread for 4 or 6 month loans. For loans with a maturityof beyond 6 months, the interest rate is floating. Under this program, exporters, who also are short-termcredit insurance policy holders of the Bank, get a discount of 25 basis points from the standard interest ratescharged by the Bank. The commercial banks to which the Bank has lent the money determine what, if any,collateral the Turkish manufacturer will have to provide in connection with the PSEC-FX loans since suchcommercial banks bear the default risk for such loans. For the years ended 31 December 2011 and 2010,respectively, the Bank had lent USD 1,205 million to intermediary banks (which had on-lent to 1,672

83

exporters) and USD 853 million to intermediary banks (which had on-lent to 1,226 exporters) under thePSEC-FX Program.

Direct Lending

The Bank has two main programs under which it lends directly to Turkish exporters, the Foreign TradeCompanies Credits and the Export Preparation Credit Program. The aim of these programs is to provide pre-shipment financing directly to Turkish exporters for their working capital needs.

Foreign Trade Companies Credits

Under the Foreign Trade Companies Credit program, the Bank makes loans to Foreign Trade Companies(“FTCs”) or Sectoral Foreign Trade Companies (“SFTCs”). FTCs are businesses, which the TurkishUndersecretariat for Foreign Trade has designated as FTCs in the Republic of Turkey’s Official Gazette. Asa group, the FTCs were responsible for exporting approximately 21.5% of Turkey’s total exports, orapproximately USD 29.0 billion, in 2011. In order to be classified as an FTC by the Undersecretariat forForeign Trade, the company (a) must have exported in the prior year more than (i) USD 100 million worthof goods, and (b) must have a minimum of TL 2 million of capital. As at the date of this OfferingMemorandum, the Undersecretariat for Foreign Trade has classified approximately 53 companies as FTCs.Meanwhile, an SFTC is formed when 10 or more small or medium-size companies in the same industrysector form a single co-operative entity for exporting purposes. To qualify as an SFTC, no single member ofthe co-operative entity may control more than 10% of the voting power, the exports of the SFTCs must be atleast USD 1 million each year and the aggregate capital of the SFTC must be at least TL 500,000.

The FTCs and SFTCs may use the loans under the FTCs Credit Lines to purchase raw materials, machineryor other manufacturing requirements. Two component programs exist under the FTCs Credit Lines: the FTCsShort-Term TL Export Credit Program, which lends in Turkish Lira to FTCs, and the Foreign TradeCompanies Short-Term Foreign Currency Credit Program, which lends in foreign currencies to FTCs.

The Bank requires that all lending under this program be collateralized or secured in the form of commercialbank guarantees, promissory notes or Treasury bills or bonds or revenue sharing certificates, although theusual form of collateral is commercial bank guarantees. The minimum level of collateral is 100% of theaggregate principal and interest of the loan.

Foreign Trade Companies Short-Term TL Export Credit Program

Under this program, the Bank makes TL-denominated loans to the FTCs for their working capital needs. Thetransaction limits for loans under this program are determined on the basis of the FTC’s export performancein the preceding year. Further, no such loan may exceed 100% of the value of the manufacturer’s exportcommitment. The Bank offers loans under this program for a maturity of 180 days.

The interest rates for loans under this program are fixed rates. The interest rates on such loans are uniformfor all loans approved with the same principal amount. As noted above, the Bank’s cost of funding for its TL-denominated short-term export credits is relatively low, and the Bank sets its interest rates on such productsat levels typically below the comparable market rates offered by Turkish commercial banks.

As at 31 December 2011 and 2010, the Bank had 11 and 12 customers (respectively) with outstanding loansunder the FTC Short-Term TL Export Credit Program.

Foreign Trade Companies Short-Term Foreign Currency Export Credit Program

The Bank extends foreign currency-denominated loans to the FTCs for their working capital needs, underthe FTC Short-Term Foreign Currency Export Credit Program. Such loans may be in U.S. Dollars, PoundSterling, Euros and, from time to time, Japanese Yen. As at 31 December 2011, the Bank had USD 11.5million in aggregate outstanding loans. The Bank limits such loans to the amount of prior year’s exportperformance of the relevant FTC. The Bank offers loans under this program with a maturity of 180 days.

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The interest rates charged by the Bank for loans under this program are mostly fixed rates. The interest rateson such loans are uniform for all loans approved on the same day, and are calculated based on four or six-month LIBOR, EURIBOR, GBP LIBOR and TIBOR (Tokyo Interbank Offer Rate) plus a spread.

As at 31 December 2011 and 2010, the Bank had two and one customer (respectively) with outstanding loansunder the FTC Short-Term Foreign Currency Export Credit Program.

Export Preparation Credit Program

Under the Export Preparation Credit Program, the Bank makes loans to businesses, which are not classifiedas FTCs or SFTCs. The Bank designed these loans to be similar to the FTC loans and they may be madeeither in Turkish Lira or in foreign currency. As at 31 December 2011 and 2010, the Bank had 245 and 169customers (respectively) with outstanding loans under the Export Preparation Credit Program.

Export Preparation Turkish Lira Credit Program and Export Preparation Foreign Currency Credit Program

Under these programs, the Bank makes working capital loans to the Turkish exporters who meet theprogram’s qualifying criteria. The foreign currency loans extended under the program may be denominatedin U.S. Dollars, Euro, Pound Sterling and Japanese Yen. The loans under these programs have a maturity ofup to 540 days. The interest rates on such TL-denominated loans are fixed rates, depending upon the size ofthe loan. Interest rates are uniform for all TL-denominated loans with the same principal amount and aretypically set at levels below the comparable market rates offered by Turkish commercial banks. Interest rateson foreign currency-denominated loans under this program are uniform for all such loans approved on thesame day with the same principal amount, and are calculated based on six-month LIBOR, or EURIBOR plusa spread.

The maximum borrowing amount for a company under these programs is USD 15 million for foreignexchange and TL credits. No loans under the programs may be in an amount which exceeds the value of theborrower’s exports commitment.

For the credit applications that are approved by the Bank, credits must be collateralized in an amount of 100percent of the principal, interest and export commitment risk of the loan. The Bank requires that all lendingunder these programs be collateralized in the form of commercial bank guarantees, Treasury bills andgovernment bonds or a contract of bailment provided by the Credit Guarantee Fund, which was establishedby the Union of Chambers and Commodity Exchanges of Turkey, a quasi-governmental organization, andsome Turkish banks to guarantee the obligations of the SMEs.

Special Credit Programs

Special credit programs include Central Bank lending programs as well as other specific credit programs.

Short-Term Export Receivables Discount Program

The Short-Term Export Receivables Discount Program is the Bank’s unique post-shipment facility. Underthis program, the Turkish exporter assigns to the Bank the bills of exchange, promissory notes (with amaximum maturity of 120 days) or letter of credit receivables to be received in its exports. Then the Bankpays the discounted amount of the note to such exporter. Typically, the Bank endorses such notes to theCentral Bank, which in turn rediscounts the notes. Within the framework of this program, the bills ofexchange, promissory notes and letter of credit receivables either guaranteed by domestic and internationalbanks or covered by the Bank’s export credit insurance policies are eligible for discount.

The Bank has limited its exposure to any single foreign trade company to no more than USD 60 million, andthe maximum exposure to any company that is not a foreign trade company to USD 40 million. Generally,Turkish exporters do not ship on a deferred payment basis and, as a result, there is no significant demand forthis facility. The Bank offers the facility to increase the competitiveness of Turkish exporters in internationalmarkets by enabling them to sell Turkish goods on deferred payment terms and eliminating overseas risk,thereby encouraging them to enter into new and target markets.

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As at 31 December 2011, the Bank did not have any customers with outstanding loans under the Short-TermExport Receivables Discount Program.

Rediscount Credit Program

The Rediscount Program was established in December 1999 to offer financial assistance to Turkish exporterson a pre-shipment basis. The Bank discounts export receivables, funding such activities through therediscounting line provided by the Central Bank to the Bank. The program, which requires an exportcommitment, provides pre-shipment credit in foreign currency and, since August 2011, in Turkish Lira witha maturity of up to 180 days. Promissory notes issued by exporters and unconditionally guaranteed by banksthat have a non-cash limit with the Bank are discounted under this limit. This program covers exporttransactions based on cash against goods, cash against documents and irrevocable letters of credit. Exportreceivables with a maturity of up to 120 days for foreign exchange with fixed interest rate and 180 days forTL with fixed interest rate are discounted by the Central Bank provided that those up to 180 days arediscounted from the Bank’s own sources for the first 60 days then submitted to the Central Bank. Customerswho also participate in the Bank’s export credit insurance receive a 0.25 point interest rate discount.

As at 31 December 2011 and 2010, the Bank had 279 and 60 customers, respectively, with outstanding loansamounting to TL 3,128.5 million and TL 687.3 million, respectively, under the Rediscount Credit Program.

Tourism Credit Program

The Tourism Credit Program is designed to provide financial support to Turkish travel agencies, airlinecompanies and tourism companies that are considered to be exporters. In 2011, the tourism revenuerequirement of USD 1 million for credit eligibility was abolished to grow this business. The Turkishgovernment supports this program due to the significant foreign exchange revenues generated from tourismand has broadened the scope of the program in 2011 to support tourism-related businesses. The Bank extendsTL-denominated and FX-denominated direct loans under this program with a maximum tenor of 540 daysto travel agencies, tourism companies and airline companies authorized by the Ministry of Tourism andforeign currency-denominated loans for a maximum tenor of 540 days. The Bank requires that the loans bewholly collateralized by Turkish commercial bank guarantees.

The maximum amount that the Bank may lend annually per company was raised to USD 15 million fromUSD 8 million in 2011. The loans bear fixed rates of interest which the Bank typically sets below thecomparable rates of interest set by Turkish commercial banks.

As at 31 December 2011 and 2010, the Bank had eight and three customers, respectively, with outstandingloans under the Tourism Credit Program.

International Transportation Marketing Credit Program

The International Transportation Marketing Credit Program aims to provide short-term financing tointernational transportation companies which have certificates of authority for international transportation,in order to reduce the transportation cost of exporting companies. In 2011, the freight revenue requirementof USD 200,000 for credit eligibility was abolished. The maximum maturity is 540 days at interest ratesdetermined by the Bank. The interest rates on such TL-denominated loans are fixed rates, depending uponthe size of loan. Interest rates for TL and foreign currency-denominated loans are determined by the Bankin accordance with developments in money markets and varies as to repayment period and the company’sborrowings. Furthermore foreign currency-denominated loans are linked to LIBOR/EURIBOR/GBPLIBOR/TIBOR plus a spread that is determined based on the Bank’s total FX funding cost and overheadcharges.

Medium- and Long-Term Export Credits

Medium- and long-term export credit programs are specific credit programs available for export transactionsthat cannot be covered under the standard credit and guarantee programs. The Bank has developed suchprograms to support the export of capital goods and turnkey projects to be undertaken by Turkish contractors

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in other countries. Loans under the Bank’s medium- and long-term credit programs accounted for, in theaggregate, 19.3%, 15.8% and 8.2% of its total loans as at 31 December 2011, 2010 and 2009, respectively.These programs involve the extension of credit as well as the providing of export insurance and guaranteesand enable Turkish exporters and contractors to mitigate risk in conducting their business, which wouldotherwise be considered to be both politically and commercially difficult from a risk perspective. Certainloans extended under short-term credit programs that have longer tenors are also classified as medium- tolong-term loans. Brief descriptions of the Bank’s main medium- and long-term credit programs which arelisted below follows:

• Country Credit and Guarantee Program

• Bridge Credit Program for Overseas Contractor Services

• European Investment Bank Credit Program

• World Bank Funded—Export Finance Intermediary Loan

The following table sets forth the amount of the outstanding balance for each of the Bank’s medium- to long-term loan products and its proportion of the total outstanding loan balance. The information set forth in thetable has been derived from the Bank’s Statutory Financial Statements.

As at 31 December–––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––

2011 2010 2009–––––––––––––––––––––––––– –––––––––––––––––––––––––– ––––––––––––––––––––––––––


Country Credit and Guarantee Program .................................... 138,681 1.7% 71,341 1.7% 72,483 1.9%

Pre-Shipment Export Credits-TL .. 292,490 3.6% 106,546 2.6% 0 0.0%Pre-Shipment Export Credits-FX .. 346,889 4.3% 143,793 3.5% 31,730 0.8%Export Preparation Credits

Program-TL ................................ 80,121 1.0% 25,095 0.6% 0 0.0%Export Preparation Credits

Program-FX................................ 168,459 2.1% 56,595 1.4% 16,812 0.4%SME Export Preparation Credits

Program-TL ................................ 3,115 0.04% 601 0.01% 153 0.0%SME Export Preparation Credits

Program-FX................................ 0 0.0% 0 0.0% 50 0.0%EIB Funded Credit Program .......... 147,881 1.8% 13,508 0.3% 3,438 0.1%World Bank Funded Export

Finance Intermediary Loan.......... 191,443 2.4% 139,046 3.3% 99,227 2.5%Bridge Credit Program for

Overseas Contractors Services .. 160,473 2.0% 91,500 2.2% 83,127 2.1%Other Specific Export Credit

Programs .................................... 25,765 0.3% 9,916 0.2% 13,215 0.3%––––––––––– ––––––––––– ––––––––––– ––––––––––– ––––––––––– –––––––––––

Total .............................................. 1,555,317 19.3% 657,941 15.8% 320,235 8.2%––––––––––– ––––––––––– ––––––––––– ––––––––––– ––––––––––– –––––––––––––––––––––– ––––––––––– ––––––––––– ––––––––––– ––––––––––– –––––––––––

Country Credit and Guarantee Program

In line with Turkey’s foreign economic policy and goals, the Bank, under its Country Credit and GuaranteeProgram, which is a buyer’s credit/guarantee scheme, provides financial support for goods and servicesexported by Turkish firms. The main objectives of these programs are to establish long-term bilateralrelations, to strengthen the competitiveness of Turkish exporters and contractors in international markets andto provide risk management options for their activities in those markets with high political and commercialrisks.

Under this program, the Bank has extended loans to state-owned banks or public entities/ministries, inborrowing countries and required the sovereign guarantee of the importing country. However, depending onthe risk classification of the borrowing country, the Bank considers extending credit lines to creditworthybanks. Turkish companies are reimbursed by the Bank for the value of the goods and services exported fromTurkey and the borrower’s account is debited. Loans under this program are denominated mainly in U.S.Dollars and Euros.

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The Bank’s countries of operations and credit ceilings are subject to the approval of the Cabinet of Ministers.Additionally, loans with a maturity of two years or more are subject to the approval of the Ministerresponsible for the Undersecretariat of Treasury in accordance with Law No. 4749. Loans totaling over USD2.29 billion have been disbursed under the Country Credit and Guarantee Program since 1989 to Turkishcontracting firms/exporters operating in 23 countries located in Central and Southern Asia, Central andEastern Europe, Africa, the Caucasus and Balkans. The amount disbursed was utilized for the exports ofgoods such as food, medicine, medical equipment, textile products, automotive products, machinery andequipment, and other industrial goods and for projects such as trade centers, medical centers, industrialplants, telecommunication, bridge/transportation, energy, petrochemicals, construction and renovation ofhotels and business centers.

Political risk losses incurred by the Bank under its Country Credit and Guarantee Program are indemnifiedby the Turkish Treasury. Since the inception of the programs in 1988, a total of USD 646 million has beenindemnified together with USD 263 million collected from the countries which has also been deemed aspolitical risk indemnification, raising the total figure to USD 909 million. The last significant indemnitypayment from the Turkish Treasury was received in 2006 stemming from collections in connection with aloan to the Russian Federation in 1997-99. Additionally, when the Bank extends concessional cash and non-cash export credits to foreign countries that the government has deemed strategically important to Turkey,the total income loss of the Bank is covered by the Treasury (currently there is no outstanding concessionalcredit). For any collections from the countries where the Undersecretariat of Treasury has fully indemnifiedthe Bank, the Bank transfers collections to the Undersecretariat of Treasury.

The Bank follows the Organization for Economic Co-operation and Development (the “OECD”) Consensusguidelines in extending country credits. Interest rates on loans under this program are floating rates,depending on the maturity of the loan. Additionally, the Bank charges an exposure fee for each transaction.

The following table sets forth the countries that participate in the Bank’s Country Credit and GuaranteeProgram and cumulative disbursements for each, with a break-down between export credits and projectcredits where applicable, as at 31 December 2011.

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Outstanding CumulativeCountries balance Disbursements––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––– ––––––––––––– –––––––––––––

(USD millions)

Albania ............................................................................................................................................................ — 13.9Export Credit .............................................................................................................................................. — 13.9

Algeria ............................................................................................................................................................ — 99.5Export Credit .............................................................................................................................................. — 99.5

Azerbaijan ...................................................................................................................................................... — 91.7Export Credit .............................................................................................................................................. — 59.6Project Credit .............................................................................................................................................. — 32.1

Belarus ............................................................................................................................................................ — 47.5Project Credit .............................................................................................................................................. 29.0 47.5

Bulgaria .......................................................................................................................................................... — 20.9Export Credit .............................................................................................................................................. — 20.9

Cuba ................................................................................................................................................................ — 12.4Export Credit .............................................................................................................................................. — 12.4

Georgia ............................................................................................................................................................ — 41.5Export Credit .............................................................................................................................................. — 41.5

Hungary .......................................................................................................................................................... — 0.1Export Credit .............................................................................................................................................. — 0.1

Kazakhstan ...................................................................................................................................................... — 213.1Export Credit .............................................................................................................................................. — 40.0Project Credit .............................................................................................................................................. — 173.1

Kyrgyz Republic ............................................................................................................................................ — 48.1Export Credit .............................................................................................................................................. — 35.7Project Credit .............................................................................................................................................. — 12.4

Libya .............................................................................................................................................................. — 128.7Project Credit .............................................................................................................................................. — 128.7

Moldova .......................................................................................................................................................... — 15.0Project Credit .............................................................................................................................................. — 15.0

Nakhichevan .................................................................................................................................................... — 19.6Export Credit .............................................................................................................................................. — 19.6

Pakistan .......................................................................................................................................................... — 58.3Project Credit .............................................................................................................................................. — 58.3

Romania .......................................................................................................................................................... — 45.7Export Credit .............................................................................................................................................. — 45.7

Russian Federation .......................................................................................................................................... — 835.0Export Credit .............................................................................................................................................. — 599.4Project Credit .............................................................................................................................................. 3.34 235.6

Sudan .............................................................................................................................................................. — 54.61Project Credit .............................................................................................................................................. 42.56 54.61

Syria ................................................................................................................................................................ — 7.0Export Credit .............................................................................................................................................. — 7.0

Tajikistan ........................................................................................................................................................ — 28.0Export Credit (*) ........................................................................................................................................ — 28.0

Tunisia ............................................................................................................................................................ — 1.9Export Credit .............................................................................................................................................. — 1.9

Turkish Rep. of Northern Cyprus .................................................................................................................. — 3.7Project Credit .............................................................................................................................................. — 3.7

Turkmenistan .................................................................................................................................................. — 133.0Export Credit .............................................................................................................................................. — 75.0Project Credit .............................................................................................................................................. — 58.0

Uzbekistan ...................................................................................................................................................... — 369.1Export Credit .............................................................................................................................................. — 124.6Project Credit (*) ........................................................................................................................................ — 244.5

––––––––––––– –––––––––––––Total ................................................................................................................................................................ 74.9 2,288.41

––––––––––––– –––––––––––––––––––––––––– –––––––––––––

(*) Transactions by the Bank as part of programs operated in conjunction with the Islamic Development Bank (“IDB”) are included.There are currently no active IDB programs.

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Since February 2012, the Bank has replaced individual country credit limits with the following limits basedon OECD country risk classifications.

OECD OECD OECD OECD OECDCountry Country Country Country Country

Risk Risk Risk Risk Risk Categories Category Category Category Category0 through 3 4 5 6 7 Total––––––––––– ––––––––––– ––––––––––– ––––––––––– ––––––––––– –––––––––––

(USD millions)–––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––

Group Limit .................................... 1,000 700 750 1,000 1,000 4,450Country Ceiling .............................. 500 315 300 300 250

The OECD country risk classifications are widely used by export credit agencies and reflect an individualcountry’s risk in relation to transfer of funds, convertibility of its currency and cases of force majeure. TheBank applies an aggregate limit for each category (or group of categories), in addition to the country ceilingwhich applies to each individual country within the relevant category (or group of categories).

Bridge Credit Program for Overseas Contractor Services

The Bridge Credit Program for Overseas Contractor Services was put into effect in 2009 in order to minimizethe effects of the financial crises in the international markets on the Turkish construction sector and to ensurethe stability of their investments and competitive capacity in this market by keeping existing constructionsites and mobilization-engine parks in function.

The Bank requires that the loans be wholly collateralized by Turkish commercial bank guarantees and canbe foreign currency denominated or Turkish Lira denominated. The Foreign Exchange Credit is short-termwith a floating interest rate. The Turkish Lira credit is medium- and long-term with optional fixed or floatinginterest rate. The loans have maturities of one year for foreign exchange credits and up to two years for TLcredits. The maximum amount that the Bank may lend under this program is USD 25.0 million.

European Investment Bank Funded Credit Program

This medium and long term investment and working capital facility is made available through a CreditAgreement signed by the Bank with the European Investment Bank in 2008. The Program aims to increasenew investments together with modernization and expansion projects in Turkey undertaken by Turkish exportoriented or foreign currency earning private sector enterprises in the manufacturing, tourism and servicesindustries. The Operations Manual for this Program came into force in 2009. Enterprises that have fewer than500 employees are eligible for this loan. The projects to be financed under this loan facility are expected tobe in conformity with the environmental regulations of Turkey and the EU. The financial terms aredetermined on a case-by-case basis by the Bank. The maturity for a working capital loan is five years andfor investment loans seven years which are granted on a project basis with a floating interest rate. Under thisProgram, direct disbursements totaled EUR 29.6 million and indirect disbursements through intermediatebanks totaled EUR 39.1 million as at 31 December 2011.

World Bank Funded Export Finance Intermediary Loans

The Export Finance Intermediary Loan (EFIL-IV), which is assigned to ship/yacht-building, electrics-electronics, automotive spare parts, machine manufacturing and metal ware sectors, was created through anagreement between the Bank and the International Bank for Reconstruction and Development (World Bank)in 2008. During 2010, the credit demands of the ship building industry, which was a sector significantlyaffected by the global financial and economic crisis, were met through this program. Since then, the programhas been broadened to include the other sectors noted above as well. As at 31 December 2011, a total of USD115 million has been disbursed to 17 customers under this program. Investment and working capital needsof exporters can be financed under this program as an investment loan or a working capital loan. The maturityfor a working capital loan is five years and for an investment loan is seven years which are granted on aproject basis with a floating interest rate, typically based on LIBOR plus a margin.

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Insurance

The Bank insures export receivables against commercial and political risks within certain limits by means ofexport credit insurance programs, one of the Bank’s main areas of activity. Commercial risks are those risksassociated with the buyer’s ability to pay, such as the buyer’s insolvency or non-acceptance of the goods.Political risks are those associated with government policies, such as transfer restrictions, foreign exchangerestrictions or war.

The Bank offers both short-term export credit insurance, which insures all shipments to be made by a Turkishexporter within one year, and medium- and long-term insurance, which insures exports and investments byTurkish companies that are financed over a term exceeding one year. Within the framework of the Bank’sshort-term export credit insurance program, the percentage of coverage is up to 90% for losses due topolitical and commercial risk with payment up to 360 days. The insurance provided under this program is acomprehensive cover including optional pre-shipment period (maximum 180 days) coverage, whereby post-shipment coverage is compulsory for the relevant applicants. The short-term export credit insurance programalso enables exporters to obtain funding from commercial banks, since policy proceedings are assignable.The Bank’s export insurance programs (which are discussed in more detail below) can be outlined as follows:

• Short-Term Export Credit Insurance Program

• Medium- and Long-Term Insurance Facilities

• Specific Export Credit Insurance Program

• Insurance Program for Unfair Calling of Bonds

The following table sets forth the income and expenses from the Bank’s export credit insurance programs foreach of the years ended 31 December 2011, 2010 and 2009. The information set forth in the table below hasbeen derived from the Bank’s Statutory Financial Statements.

Year ended 31 December–––––––––––––––––––––––––––––––––––––––––

2011 2010 2009–––––––––––– ––––––––––––– –––––––––––––

(in thousands of TL)Income:Premium Income ................................................................................................................ 34,380 28,219 23,783Insurance Commissions from Reinsurance Companies ...................................................... 9,041 7,598 5,962Collections from Overdue Premium Receivables .............................................................. 194 87 28Collections from Claims Paid.............................................................................................. 2,054 2,343 1,498

–––––––––––– ––––––––––––– –––––––––––––Total Income ...................................................................................................................... 45,669 38,247 31,271

–––––––––––– ––––––––––––– ––––––––––––––––––––––––– ––––––––––––– –––––––––––––Expense:Premiums Paid to Reinsurance Companies ........................................................................ 19,233 18,523 14,785Claims Expense (Indemnifications) .................................................................................... 1,818 2,218 1,470Information Gathering Expenses ........................................................................................ 2,772 2,040 2,381

–––––––––––– ––––––––––––– –––––––––––––Total Expense .................................................................................................................... 23,823 22,781 18,636

–––––––––––– ––––––––––––– ––––––––––––––––––––––––– ––––––––––––– –––––––––––––

Pursuant to the Decree, the Treasury indemnifies the Bank 100% against losses due to political risk. TheBank may seek to be reimbursed by the Treasury if it must pay a claim under one of its insurance programsdue to political risk. The Bank annually submits its claims for reimbursement from the Treasury for lossesdue to political risks in connection with the preparation of Turkey’s annual budget. When the GeneralAssembly approves the annual budget, only then is the Treasury authorized to indemnify the Bank for itspolitical risk-related losses. All such claims have historically been paid in full.

For export credit insurance covering political and commercial risk, the exporter is charged a premiumaccording to the risk classification of the buyer’s country (if any), terms and conditions of payment, and typeof buyer (sovereign or private). Under Article 4(C) of the Decree, which established the Bank, the Treasuryis obligated to meet any losses incurred by the Bank in its credit, insurance and guarantee transactions as aresult of political risks. Since the indemnity to the Bank from the Undersecretariat of the Treasury solelyrelates to political risk, the losses due to commercial risk are underwritten by the Bank from its own

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resources. However, financial re-insurance agreements have been established with domestic and overseas re-insurance companies on the basis of a quota-share treaty to transfer a major portion (currently 70%) of thecommercial risks out of 90% shipment coverage borne by the Bank under the Short-Term Export CreditInsurance program. In addition, the Bank also reinsures 70% of the underwritten short-term political risks inthe case of exports to non-OECD countries within specific country limits agreed to with reinsurancecounterparties since the beginning of 2000.

The following table sets forth the amount of insurance underwritten by the Bank under its export creditinsurance programs for the years ended 31 December 2011, 2010 and 2009 and the change from thecomparable prior period.

Year ended 31 December––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––

% % % change change change2010/ 2009/ 2008/

2011 2011 2010 2010 2009 2009–––––––––––– –––––––––––– –––––––––––– –––––––––––– –––––––––––– ––––––––––––

(in thousands of USD, except percentages)

Export credit insurance underwritten 5,751,966 15% 5,010,215 11% 4,523,715 11%

Source: Internal accounts.

Short-Term Export Credit Insurance Program

The Short-Term Export Credit Insurance Program applies to goods exported by Turkish companies and isavailable to all Turkish exporters. Under this program, all shipments to be made by a Turkish exporter withinone year and with payments deferred up to 360 days may be insured by the Bank against commercial andpolitical risks under the buyer limits set by the underwriting department of the Bank. A fee is levied on eachapplication for insurance, with the amount varying depending upon the type of entity (FTC, SFTC, jointstock company, etc.) seeking insurance. The premium rates vary according to the risk classification of thebuyer’s country, the terms and conditions of payment and the nature of the buyer (public/private). Currently,premiums range from 0.2% to 4.0% of the value of the shipment. The policy proceeds are assignable forfinancing purposes.

In order to encourage use of this Program, the Bank provides policyholders a reduction on the interest ratescharged in connection with the Bank’s short-term export credits. The Bank only levies one premium, whichcovers both political and commercial risks.

Medium- and Long-Term Insurance Facilities

The medium- and long-term insurance facilities include export credit insurance for commercial and politicalrisks for periods in excess of one year.

Specific Export Credit Insurance Program. This program, introduced in 1990, provides insurance coveragainst commercial and political risks for the export of capital and semi-capital goods having at least 60%domestic content (such as motor vehicles, ships, agricultural and mining equipment, etc.) and sold on creditterms of up to five years maturity.

This is a single buyer insurance program providing cover against political and commercial risks for both thepre-shipment and post-shipment stages. The cover is up to 90% of the sum insured, which, in turn, is limitedto 85% of the contract value of the goods exported.

Insurance Program for Unfair Calling of Bonds. This program covers the risk of unfair calling of bonds(bid bonds, advance payment bonds and performance bonds) issued by Turkish commercial banks on behalfof Turkish contractors in favor of public buyers for overseas projects undertaken by Turkish contractors.

Equity Investments

As at the date of this Offering Memorandum, the Bank has no subsidiaries. It has an equity interest in twoTurkish companies: a 9.78% shareholding in Garanti Faktoring Hizmetleri A.Ş., a factoring company, which

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it holds in order to promote the development of the factoring business in Turkey and a 1.66% shareholdingin Kredi Garanti Fonu A.Ş., which was established to support SMEs by providing a guarantee for theirfinancing. The Bank currently views such equity investments as non-core and intends to sell such interests,subject to improvement in market conditions.

Real Estate Holdings

The Bank owns its headquarters’ building in Ankara and its branch office in Istanbul. In accordance with thecurrent relocation plan, the Bank leased a building for the headquarters in Istanbul. It also leases its branchoffice in Izmir. The Export Associations, which are quasi-governmental regional exporter associations,assign premises to the Bank for its six liaison offices in Denizli, Kayseri, Gaziantep, Bursa, Adana andTrabzon. The Bank opened liaison offices in Kayseri and Denizli in 2004, Gaziantep in 2005, and Bursa,Adana and Trabzon in 2006; these represent six of the industrialized provinces with high export potential.

In addition, the Bank owns 59 apartments, which it uses to provide housing to certain of its employees.

Employees

The following table sets forth the total number of employees of the Bank (including its directors) as at 31December 2011, 2010 and 2009.

In 2011, the Bank recruited 62 personnel, particularly for IT, bank analysis, company information andanalysis, internal control and internal audit in line with the planned growth of the Bank.

As at 31 December–––––––––––––––––––––––––––––––––––––––––

2011 2010 2009–––––––––––– –––––––––––– ––––––––––––

Total employees .................................................................................................................. 397 360 382

The Bank currently plans to recruit 85 new personnel in 2012, primarily in connection with its planned moveto Istanbul, as some employees are likely to be unwilling to relocate and others are expected to retire.

The Bank provides its employees with extensive training (in-house and through external institutions) in orderto enhance their skills, including computer literacy, and to ensure that they keep abreast of developments intheir fields.

All employees who retire, or whose employment is terminated without cause, are entitled under Turkishlegislation to lump sum payments. Such payments are based on the number of years of service and finalsalary at the date of retirement or leaving. In addition, the Bank self-insures the health care costs of all of itsemployees and provides housing or a housing allowance to its employees. Management believes that currentrelations with its employees are satisfactory. None of the Bank’s employees are unionized and the Bank hasno history of work stoppages or workplace disturbances.

Information Technology

The Bank’s information technology department seeks to provide, deliver and maintain secure and updatedtechnology and document management systems. It is comprised of two departments (the informationtechnology department and the system development department) and employs 24 graduates of IT relateddisciplines.

The Bank’s information system consists of an Oracle Database and document management system based onthree different servers running on Unix and Windows operating systems. The Bank is also currentlyupgrading its databases and virtual servers, which will be regularly backed-up by the Bank’s disasterrecovery site in accordance with its business continuity plan. The implementation of the Bank’s disasterrecovery site is currently ongoing and is planned to be completed by the end of April 2012.

The protection of information is considered by the Bank to be a priority and it uses trusted systems andproducts (such as Symantec Endpoint Protection, Brightmail and Websense) to ensure a high level of

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security. Both the Bank’s external and internal (i.e., between the Bank’s main office and branch and liaisonoffices) communications are made using secure connections and payment systems. These include point topoint secure connections, TCMB and SWIFT payment systems.

The Bank’s Information Technology Department is under the supervision of the BRSA in accordance withthe COBIT (“Control Objectives of Information and Related Technology”) framework. The Bank’s ITprocesses are organized according to this framework and there are approved and well-defined IT processesfor information security, strategic planning, risk management, problem and incidence management, servicemanagement and change management, amongst others.

Legal Proceedings

Save as disclosed below, there are no governmental, legal or arbitration proceedings (including any suchproceedings which are pending or threatened of which the Bank is aware), which may have, or have had,during the 12 months prior to the date of this Offering Memorandum, a significant effect on the Issuer’sfinancial position.

At 31 December 2011, there were 117 legal proceedings outstanding against the Bank amounting to USD2,593,513, EUR 15,000 and TL 450,958. No provision has been made to outstanding legal cases as at 31December 2011 as professional advice indicated that it was unlikely that any significant loss would arise.

A number of the suits outstanding in Turkish courts relate to employee bonus payments. Other remaininglawsuits mostly involve compensation claims filed by insurance claimants for increased payouts under theBank’s insurance programs. The aggregate amount of such lawsuits is approximately TL 660,000.

Regarding the employee bonus payment claims, in the second half of 2008, the Bank ceased paying bi-annual bonuses to its employees following an inspection by the Supreme Auditing Council, which is a partof the Turkish Court of Accounts. The public inspectors recommended terminating bonus payments basedon their judgment that such payments exceeded government caps. As a result, 57 lawsuits were filed againstthe Bank by employees who retired after the change was implemented alleging that the Bank should havepaid their bonuses as at 31 December 2011.

Seventeen of those cases brought by former employees of the Bank at Ankara’s 15th Labour Court resultedin decisions against the Bank by the end of 2011. Furthermore, the related decision was also confirmed bythe Court of Appeals, the highest appellate court in Turkey for all such cases. The Bank made a payment ofTL 151 thousand with regard to the cases decided against the Bank in 2011.

Within this framework, the Bank’s management allocated an amount of TL 30 million as an employee bonusprovision for the second half of 2008, and for the years 2009, 2010 and 2011, in which no “success” or“bonus” fees were paid, in light of the cases that resulted in decisions against the Bank. The provision coversTL 1,550 thousand allocated for ongoing lawsuits opened by retired personnel, TL 1,300 thousand allocatedfor personnel who have retired but have not yet filed a lawsuit, and TL 27,150 thousand allocated foremployees who are currently employed by the Bank.

In January 2012, the Bank amended its Articles of Association to restrict the Supreme Auditing Council fromadvising on compensation-related issues and has since paid bonuses to employees for 2011.

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RISK MANAGEMENT

The purpose of asset and liability management is to monitor and control the size and concentration of riskarising from interest rate sensitivity, exchange rate sensitivity and liquidity. The principal categories of riskinherent to the Bank’s business are market risk, credit risk, liquidity risk and operational and legal risk. TheBank’s risk management policy is designed to identify and analyze the above mentioned risks, setappropriate limits, and continually monitor these risks and limits by means of management informationsystems. In addition, the Bank periodically evaluates its risk management policies and systems to determineif they need to be modified in order to reflect changes in markets and products.

The Supreme Advisory and Credit Guidance Committee, the Board of Directors, the Executive Committeeand the Credit Committee all play a role in shaping the Bank’s risk management policy and procedures. TheSupreme Advisory and Credit Guidance Committee approves the upper limits of credits to be extended,guarantees to be issued and insurance transactions to be effected by the Bank either as a total amount or bycountries and product groups. The Board of Directors must observe these limits. For short-term lending, theCredit Committee meets on a weekly basis to approve loan applications. For medium- and long-term lending,the loan application must first be approved by the Executive Committee and then must be approved by theBoard of Directors.

The Bank’s short and medium/long-term credit programs are carried out with respect to financial conditions(terms, interest rates, collaterals, etc.) and procedures approved by the Board of Directors. Cost of funds,maturity of the transaction, structure of the collateral and variation of the market interest rates are taken intoconsideration and the Bank’s mission to provide financing opportunities with costs which will lead theexporters to gain competitive advantages in the existing markets and risky/new countries is also consideredduring the pricing process of the loans.

Strategy in using financial instruments

The objective of the Bank’s asset and liability management and use of financial instruments is to limit theBank’s exposure to liquidity risk, interest rate risk and foreign exchange risk, while ensuring that the Bankhas sufficient capital adequacy. The Board of Directors of the Bank sets risk limits and parameters on a day-to-day basis for transactions with maturities of more than two years and in an amount less than or equal toUSD 5 million. For transactions of more than two years or in an amount greater than USD 5 million,authority is delegated to the Deputy Prime Minister.

As at 31 December 2011, the Bank’s loan portfolio constituted 83% of its total assets, as compared to 66%and 60% at 31 December 2010 and 2009. The Bank is exposed to the risk of the Turkish banking system withregards to short-term, medium-term and long-term lending (other than fund sourced and country loans).Medium-term to long-term country loans, however, are under the political risk guarantee of the TurkishTreasury.

While the majority of the Bank’s TL loans are at fixed rates, its loan portfolio includes floating rate foreigncurrency loans as well. In accordance with its mission, the Bank strives to match the cost of its funding tointerest rates charged on its foreign currency loans. Loans denominated in Turkish Lira are fully funded byequity.

Credit risk

Credit risk is the risk that a counterparty to a financial contract with the Bank will fail to perform accordingto the terms and conditions of the contract and cause the Bank to suffer a loss. This risk arises from theBank’s financing and investment activities. The Bank has established a system for approving, monitoring andcontrolling such risk as described below. Although the Bank actively seeks to manage and mitigate credit riskconsiderations, the losses incurred by the Bank in its credit, guarantee and insurance transactions as a resultof political risks are covered by the Turkish Treasury.

According to article numbered 25 of the decree (regulating the “Articles of Association” of the Bank) of theCouncil of Ministers dated 17 June 1987, the scope of the annual operations of the Bank is determined by

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the Bank’s Annual Program, which is approved by the Supreme Advisory and Credit Guidance Committee(“SCLGC”). The SCLGC is currently chaired by the Deputy Prime Minister and is comprised of senioreconomic officials and executive managers of the bank. The Board of Directors of the Bank is authorized toallocate the risk limits of loan, guarantee and insurance premium to country, sector and commodity groups,within the principles set by the Annual Program. The Bank’s loan and risk departments monitor the risks andlimits of companies and banks on a weekly and monthly basis.

Credit approval for direct lending programs for risks equaling less than 1% of the Bank’s shareholders’equity is centralized in weekly meetings of the Bank’s Credit Committee, while for risks that exceed 1% ofthe Bank’s shareholders’ equity credit is approved by the Board of Directors. All direct lending is requiredto be collateralized in the form of bank guarantees, promissory notes or Treasury bills or bonds or revenuesharing certificates.

In accordance with the collateralization policy of the Bank, the Bank is exposed to the risks of short-termloans to domestic banks. The cash and non-cash limits on domestic banks for short-term and medium- andlong-term credits are approved by the Board of Directors. In addition, all of the foreign exchangedenominated operations and other derivative transactions of the Bank are carried out under the limitsapproved by the Board of Directors.

The risk limits of the foreign country loans are determined by annual programs which are approved bySCLGC according to foreign economic policy. Country loans are granted with the approval of the Board ofDirectors and the approval of the Minister and the Council of Ministers, according to article 10 of Act no.4749 dated 28 March 2002 related to the regulation of Public Finance and Debt Management. Thefundamental collateral of foreign country loans are the government guarantee of the counter-country and theguarantee of banks that the Bank accepts as accredited. The limit of a country is restricted by both“maximum limit that can be undertaken” and “maximum amount that can be used annually.”

The Bank reviews OECD country risk groupings, reports of the members of the International Union of Creditand Investment Insurers, reports of independent credit rating institutions and the financial statements of thebanks risks of which are undertaken during the assessment and review of the foreign country loans granted.In addition, country reports and short-term country risk classifications prepared within the Bank are alsoutilized.

Each year a major portion of the commercial and political risks related to the Short Term Export InsuranceProgram is transferred to international reinsurance companies under renewed agreements. According to theArticle 4/C of Act no. 3332 that was appended by Act no. 3659 and Act regarding the regulation of PublicFinancing and Debt Management dated 28 March 2002, the losses incurred by the Bank in its credit,guarantee and insurance transactions as a result of political risks are covered by the Turkish Treasury. TheBank holds a portion of the commercial risks (currently 30%) that can be indemnified from its own sources.

Short-Term Export Credit Insurance premium rates differ according to criteria such as risk classification ofthe buyer’s country, payment terms, credit length and the legal status of the buyer (private/public). Thepremium rates increase as the risk classification of the buyer’s country is higher and/or as the payment termsare longer. The premium rates are revised regularly and are valid after the approval of the Board of Directors.The quotation strategy, which is the basis of determining the premium rates, is generated taking into accountdomestic market conditions, international quotations of export credit insurance services and the size of thepast years’ accumulated losses.

Intermediary Bank Loan Application and Approval Process

Borrowers eligible for the Bank’s Pre-shipment Export Credits may apply through an appointed commercialbank. Currently, the Bank has granted approval for 44 Turkish commercial banks to offer these credits.Applications are reviewed by the commercial bank and approved applications are forwarded to thecommercial bank’s designated branch which in turn forwards them to the Bank for review.

If loans are approved, both the borrower and the intermediary bank will receive notification. The notificationspecifies the loan interest rate together with repayment terms. After the disbursement is made to the

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designated branch of the intermediary bank, the bank is supposed to transfer the funds to the exportingclient’s account on the same day. Beginning from the date of disbursement of the loan to the designatedbranch of the intermediary bank, the borrower is obliged to fulfill its export commitment within the creditperiod. The borrower must provide proof upon repayment of the loan that it has fulfilled its exportcommitment by providing the intermediary bank with a copy of its export declaration. If the exporter cannotprove that it exported the products against which the funds were lent, the exporter must pay a penalty, plusthe banking and insurance transaction tax and other fees.

Direct Lending

Credit approval is centralized in the Credit Committee which meets weekly to decide on direct loanapplications, using criteria such as the following when evaluating applications for direct loans:

• Size of the company

• Nature of guarantees established

• Eligibility for credit application repayment period

• Financial performance for the past three years

Based on these and other criteria, the Credit Committee determines the structure of collateral required foreach loan. Direct lending is generally secured by fundamental collateral in an amount of 100% of theprincipal, interest and the export commitment risk of the loan. Fundamental collateral is generally in the formof letter of bank guarantees, government securities and Credit Guarantee Fund (KGF) guarantee.

Credit limits are monitored internally by the risk analysis department and the relevant departmentadministering the program under which the credit was extended through the Bank’s IT systems. Thefollowing table sets forth the Bank’s company credit limits for each of its short-term export credit programsdescribed in “Business—Banking Activities—Short-Term Credits”:

Credit Program Limit––––––––––––––– –––––––––––––

(in millionsof USD)

PSEC-TL ...................................................................................................................................................................................... 15PSEC-FX...................................................................................................................................................................................... 15Export Preparation Credit Program (TL and FX)........................................................................................................................ 15Short-Term Export Receivables Discount Program (TL and FX)– Foreign Trade Companies(*) ...................................................................................................................................................... 60– Other Companies ...................................................................................................................................................................... 40Tourism Credit Program .............................................................................................................................................................. 15International Transportation Marketing Credit Program ............................................................................................................ 6

* For the Foreign Trade Companies Export Credit Programs, different limits are granted to each company.

The Bank’s credit rating system

Risk assessment of banks and other financial institutions

The Bank requests an independent auditor’s report (financial statements and notes) and net foreign currencyposition from banks and other financial institutions on a quarterly basis. Financial statement informationderived from the independent audit or review reports of banks and other financial institutions is recorded intoa database in a standard format, and percentage changes and ratios related with the capital adequacy, assetquality, liquidity and profitability of the banks and other financial institutions are calculated. In addition, thestandard ratios for capital adequacy, asset quality, liquidity and profitability ratios are redefined periodicallytaking into consideration the operations of the banking groups and acceptable intervals for standards ratiosare set.

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In accordance with standard ratios, the financial analysis groups are established by assigning grades from 1to 4 to banks and other financial institutions. Group grade 1 consists of the lowest risk profile banks andfinancial institutions and group grade 4 consists of the highest risk profile banks and financial institutions.

In accordance with the financial analysis group of the banks and other financial institutions, the final riskgroups are determined by considering qualitative factors such as shareholding structure, group companies,credit ratings from international credit rating institutions, quality of management and also informationobtained from the media.

As at 31 December 2011, 31 December 2010 and 31 December 2009, loans granted by the Bank to banksand other financial institutions amounted to TL 3,631.1 million, TL 2,058.4 million and TL 1,934.7 million,respectively. The following table sets forth information on the risk rating classes of loans and advances tobanks and financial institutions in accordance with the Bank’s analysis, as at 31 December 2011, 2010 and2009.

As at 31 December––––––––––––––––––––––––––––––––––––––––

2011 2010 2009––––––––– ––––––––– –––––––––

Rating Concentration Concentration ConcentrationClass level level level

––––––––– ––––––––– ––––––––– –––––––––(%) (%) (%)

Low.......................................................................................................... 1-2 54 22 51Medium .................................................................................................. 3 24 33 33High ........................................................................................................ 4 22 45 16

Risk assessment of companies

In the risk evaluation of the companies, the Bank obtains financial and organizational information both fromthe companies and also from various sources (such as Central Bank records, Trade Registry Gazette,Chamber of Trade records, information obtained from the Undersecretariat of Foreign Trade, banks andcompanies operating in the same sector) and uses comprehensive investigation and verification methods. Inaddition to the analysis of the last three year financial statements of the companies, the Bank also analysesthe current status of the sectors in which the companies operate, economic and political changes affectingthe target sectors in the international markets and the advantages and disadvantages of the companiescompared to their rival companies operating in or outside Turkey. In case the company is a member of agroup of companies not organized as a holding company, the developments that affect the group’s operationsare monitored; outstanding bank debts of the group are also assessed; and company analysis reports areprepared taking into account the group risk as well. The Bank does not utilize a separate rating systemregarding the risk assessment of the companies. While third-party credit ratings or credit scores are availablefor some of the largest Turkish companies, they are typically not available for most Turkish companies.

The following table sets forth the classification and allowance percentages of the Bank’s loans and advancesto customers as at 31 December 2011, 2010 and 2009.

As at 31 December–––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––

2011 2010 2009–––––––––––––––––––– –––––––––––––––––––– ––––––––––––––––––––

Allowance Allowance AllowanceLoans and for loan Loans and for loan Loans and for loanadvances losses advances losses advances losses

––––––––– ––––––––– ––––––––– ––––––––– ––––––––– –––––––––(in percentages)

Standard loans and advances .......... 97.55 — 97.08 — 97.32 —Loans and advances underclose monitoring .......................... 1.04 — 0.10 — 0.10 —

Impaired loans and advances.......... 1.41 100.00 2.82 100.00 2.58 100.00––––––––– ––––––––– ––––––––– ––––––––– ––––––––– –––––––––

Total .............................................. 100 2.24 100.00 4.06 100.00 3.93––––––––– ––––––––– ––––––––– ––––––––– ––––––––– –––––––––––––––––– ––––––––– ––––––––– ––––––––– ––––––––– –––––––––

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Credit exposures

The following table sets forth the Bank’s maximum exposure to credit risk, including on- and off-balancesheet items, as at 31 December 2011, 2010 and 2009.

As at 31 December–––––––––––––––––––––––––––––––

2011 2010 2009––––––––– ––––––––– –––––––––


Credit risk exposures relating to on-balance sheet assets:Due from banks .................................................................................................................. 667,357 886,750 2,059,188Loans and advances to– Domestic banks and other financial institutions .............................................................. 3,492,429 1,987,088 1,847,478– Foreign banks and other financial institutions ................................................................ 138,681 71,342 87,200– Corporate customers and personnel ................................................................................ 4,366,104 2,047,845 1,919,748Trading securities ................................................................................................................ 342,935 308,488 150,149Derivative financial instruments .......................................................................................... 15,895 1,885 16,548Investment securities(*)

– Held-to-maturity .............................................................................................................. 511,436 891,703 309,068Other assets.......................................................................................................................... 13,335 5,087 6,139Credit risk exposures relating to off-balance sheet items:Financial guarantees ............................................................................................................ 518,997 1,078,703 841,152Commitments (excluding revocable commitments)(*) ........................................................ — — 13,523

––––––––– ––––––––– –––––––––Total .................................................................................................................................... 10,067,169 7,278,891 7,250,193

––––––––– ––––––––– –––––––––––––––––– ––––––––– –––––––––

(*) Available for sale securities, which includes equity investments, and share capital commitments have not been included because suchsecurities are no longer classified as carrying credit risk exposure.

The following tables set forth the geographical distribution of the Bank’s on-balance sheet assets exposed tocredit risk, as at 31 December 2011 and 31 December 2010.

EU OECD OtherTurkey Countries Countries(*) USA Countries Total


Due from banks .............................. 613,352 12,060 1,384 40,561 — 667,357 Loans and advances to– Domestic banks and other

financial institutions .................. 3,492,429 — — — — 3,492,429 – Foreign banks and other

financial institutions .................. — — — — 138,681 138,681 – Corporate customers

and personnel ............................ 4,366,104 — — — — 4,366,104 Trading securities .......................... 342,935 — — — — 342,935 Derivative financialinstruments.................................... — 15,895 — — — 15,895

Investment securities(**)

– Held-to-maturity .......................... 511,436 — — — — 511,436 Other assets .................................... 13,335 –— — — — 13,335

––––––––– ––––––––– ––––––––– ––––––––– ––––––––– –––––––––As at 31 December 2011 .............. 9,339,591 27,955 1,384 40,561 138,681 9,548,172

––––––––– ––––––––– ––––––––– ––––––––– ––––––––– –––––––––––––––––– ––––––––– ––––––––– ––––––––– ––––––––– –––––––––

(*) All OECD countries except for countries in the EU, U.S. and Canada (which is included in “Other Countries”).

(**) Available for sale securities, which includes equity investments, have not been included because such securities are no longerclassified as carrying credit risk exposure.

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EU OECD OtherTurkey Countries Countries(*) USA Countries Total


Due from banks .............................. 579,943 306,450 229 128 – 886,750Loans and advances to– Domestic banks and other

financial institutions .................. 1,987,088 – – – – 1,987,088– Foreign banks and other

financial institutions .................. – – – – 71,342 71,342– Corporate customers and

personnel.................................... 2,047,845 – – – – 2,047,845Trading securities .......................... 308,488 – – – – 308,488Derivative financialinstruments.................................... – 1,885 – – – 1,885

Investment securities(**)

– Held-to-maturity .......................... 891,703 – – – – 891,703Other assets .................................... 5,087 – – – – 5,087

––––––––– ––––––––– ––––––––– ––––––––– ––––––––– –––––––––As at 31 December 2010 .............. 5, 820,154 308,335 229 128 71,342 6, 200,188

––––––––– ––––––––– ––––––––– ––––––––– ––––––––– –––––––––––––––––– ––––––––– ––––––––– ––––––––– ––––––––– –––––––––

(*) All OECD countries except for countries in the EU, U.S. and Canada (which is included in “Other Countries”).

(**) Available for sale securities, which includes equity investments, have not been included because such securities are no longerclassified as carrying credit risk exposure.

The following tables set forth the sectoral distribution of the Bank’s on-balance sheet assets exposed to creditrisk, as at 31 December 2011 and 31 December 2010.

WholesaleFinancial Manufact- and Retail Public

Institutions Agriculture uring Trade Construction Sector Other Personnel Total–––––––– –––––––– –––––––– –––––––– –––––––– –––––––– –––––––– –––––––– ––––––––

(in thousands of TL)Due from banks .............. 667,357 – – – – – – – 667,357Loans and advances to– Domestic banks and

other financialinstitutions ................ 3,492,429 – – – – – – – 3,492,429

– Foreign banks andother financialinstitutions ................ 138,681 – – – – – – – 138,681

– Corporate customers and personnel ............ – 136,271 3,430,586 111,598 380,628 – 304,615 2,406 4,366,104

Trading securities .......... – – – – – 342,935 – – 342,935Derivative financialinstruments .................... 15,895 – – – – – – – 15,895Investment securities– Held-to-maturity.......... – – – – – 511,436 – – 511,436Other assets .................... 8,354 – 4,356 625 – – – – 13.335

–––––––– –––––––– –––––––– –––––––– –––––––– –––––––– –––––––– –––––––– ––––––––As at 31 December 2011 4,322,716 136,271 3,434,942 112,223 380,628 854,371 304,615 2,406 9,548,172

–––––––– –––––––– –––––––– –––––––– –––––––– –––––––– –––––––– –––––––– –––––––––––––––– –––––––– –––––––– –––––––– –––––––– –––––––– –––––––– –––––––– ––––––––

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WholesaleFinancial Manufact- and Retail Public

Institutions Agriculture uring Trade Construction Sector Other Personnel Total–––––––– –––––––– –––––––– –––––––– –––––––– –––––––– –––––––– –––––––– ––––––––

(in thousands of TL)Due from banks .............. 886,750 – – – – – – – 886,750Loans and advances to– Domestic banks and

other financialinstitutions ................ 1,987,088 – – – – – – – 1,987,088

– Foreign banks andother financialinstitutions ................ 71,342 – – – – – – – 71,342

– Corporate customersand personnel ............ – 24,076 1,209,845 30,858 754,769 – 25,706 2,591 2,047,845

Trading securities .......... – – – – – 308,488 – – 308,488Derivative financialinstruments .................... 1,885 – – – – – – – 1,885Investment securities(*)

– Held-to-maturity.......... – – – – – 891,703 – – 891,703Other assets .................... 1,464 – 3,302 321 — — – – 5,087

–––––––– –––––––– –––––––– –––––––– –––––––– –––––––– –––––––– –––––––– ––––––––As at 31 December 2010 2,948,529 24,076 1,213,147 31,179 754,769 1,200,191 25,706 2,591 6,200,188

–––––––– –––––––– –––––––– –––––––– –––––––– –––––––– –––––––– –––––––– –––––––––––––––– –––––––– –––––––– –––––––– –––––––– –––––––– –––––––– –––––––– ––––––––

(*) Available for sale securities, which includes equity investments, have not been included because such securities are no longerclassified as carrying credit risk exposure.

Impairment and provisioning policies

The Bank reviews its loan portfolios to assess impairment on a quarterly basis and, while it is not requiredto comply with BRSA loan impairment requirements, it voluntarily follows the BRSA requirements in allrespects in the Statutory Financial Statements. In the IFRS Financial Statements, in determining whether animpairment loss should be recorded in the income statement, the Bank makes judgments as to whether thereis any observable data indicating that there is a measurable decrease in the estimated future cash flows froma portfolio of loans before the decrease can be identified with an individual loan in that portfolio. Thisevidence comprises observable data indicating that there has been an adverse change in the payment statusof borrowers in a group, or national or local economic conditions that correlate with defaults on assets in thegroup. The Bank uses estimates based on historical loss experience for assets with credit risk characteristicsand objective evidence of impairment similar to those in the portfolio when scheduling its future cash flows.The methodology and assumptions used for estimating both the amount and timing of future cash flows arereviewed regularly to reduce any differences between loss estimates and actual loss experience.

The Bank sets aside 100% specific provisions for short-term non-performing receivables. In addition, theBank also provides an additional impairment provision for other components of the loan portfolio to coverthe incurred risk of loss present in the lending relationship but not yet identified with a specific loan.

For insurance activities, the Bank additionally sets aside fixed collateral for the amount determined by theapproval of the relevant Minister and variable collateral out of the definite rate of the premium income. Incase of claims payments, the Bank sets aside specific provisions based on the coverage rate indicated in theinsurance policy out of quota Bank’s share.

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The following table sets forth information on the Bank’s loans and advances to customers by credit status,as at 31 December 2011, 2010 and 2009.

As at 31 December–––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––

2011 2010 2009–––––––––––––––––––– –––––––––––––––––––– ––––––––––––––––––––

Corporate Personnel Corporate Personnel Corporate PersonnelLoans Loans Loans Loans Loans Loans


Standard loans andadvances(1) .................................... 7,977,924 2,406 4,152,033 2,591 3,901,080 3,426

Loans and advances underclose monitoring(2) ........................ 85,289 — 4,514 — 4,160 —

Impaired loans and advances(non-performing loans) ................ 114,853 — 120,776 — 103,498 —

Gross loans and advancesto customers ................................ 8,178,066 2,406 4,277,323 2,591 4,008,738 3,426

––––––––– ––––––––– ––––––––– ––––––––– ––––––––– –––––––––––––––––– ––––––––– ––––––––– ––––––––– ––––––––– –––––––––Allowance for impairmentlosses ............................................ (183,258) — (173,639) — (157,738) —

––––––––– ––––––––– ––––––––– ––––––––– ––––––––– –––––––––Net loans and advancesto customers ................................ 7,994,808 2,406 4,103,684 2,591 3,851,000 3,426

––––––––– ––––––––– ––––––––– ––––––––– ––––––––– –––––––––––––––––– ––––––––– ––––––––– ––––––––– ––––––––– –––––––––

(1) Standard corporate loans and advances include loans amounting to TL 21,552 thousand (2010: TL 640,937 thousand) which are pastdue but not impaired as potential losses on those loans are transferred to Turkish Treasury (see Notes 8 and 15 in the IFRS FinancialStatements set forth elsewhere in this Offering Memorandum).

(2) As at 31 December 2011, loans and advances under close monitoring includes loans amounting to TL 84,286 thousand that were notpast due but had been extended to customers whose other loans are under close monitoring.

As at 31 December–––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––

2011 2010 2009–––––––––––––––––––– –––––––––––––––––––– ––––––––––––––––––––

Corporate Personnel Corporate Personnel Corporate PersonnelLoans Loans Loans Loans Loans Loans


Loans guaranteed by other banks .... 4,410,551 — 1,457,180 — 1,369,947 —Loans guaranteed by Turkish Treasury ........................................ 21,552 — 640,937 — 600,615 —

Loans guaranteed by a third party.... — 2,406 — 2,591 — 3,426––––––––– ––––––––– ––––––––– ––––––––– ––––––––– –––––––––

Total .............................................. 4,432,103 2,406 2,098,117 2,591 1,970,562 3,426––––––––– ––––––––– ––––––––– ––––––––– ––––––––– –––––––––––––––––– ––––––––– ––––––––– ––––––––– ––––––––– –––––––––

Unsecured exposures(*).................... 3,745,963 — 2,179,206 — 2,038,176 —––––––––– ––––––––– ––––––––– ––––––––– ––––––––– –––––––––

Total loans and advancesto customers ................................ 8,178,066 2,406 4,277,323 2,591 4,008,738 3,426

––––––––– ––––––––– ––––––––– ––––––––– ––––––––– –––––––––––––––––– ––––––––– ––––––––– ––––––––– ––––––––– –––––––––

(*) Unsecured exposures represent loans and advances granted to domestic banks, foreign banks and other financial institutions andindividually impaired loans.

As at 31 December 2011, 31 December 2010 and 31 December 2009 the Bank did not have any repossessedcollateral.

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Market risk

Market risk can be defined as the risk of loss resulting from adverse changes in the financial markets inwhich the Bank operates. Exposure to such risk is a consequence of the Bank’s financing and investmentactivities and arises from diverse factors affecting prices, such as the correlation between interest andexchange rates in different markets as well as the volatility in the levels of interest and exchange rates. TheBoard of Directors sets the maximum exposure limits for each category of investment. The relevantdepartments monitor the market risks and report on these risks to the Bank’s Executive Committee.

The Bank marks to market all its Turkish lira and foreign currency marketable security positions as a resultof its daily financial activities in order to be able to hedge market risk. In order to limit possible losses frommarket risk, the Bank applies maximum position limits, maximum daily transaction limits and stop/losslimits for all Turkish lira and foreign currency trading transactions, including marketable securitytransactions; such limits are approved by the Board of Directors.

The Bank calculates the amount subject to market risk, including with respect to currency risk and interestrate risk, in accordance with the “Communiqué Related to Market Risk Measurement by Standard Method”(“Standard Method”) issued by the BRSA. In accordance with such method, currency risk is reportedweekly, and market risk, including both currency risk and interest rate risk, is reported monthly to the BRSA.The Bank has very limited holdings of equity securities, which as at 31 December 2011 amounted to TL 11.3million.

Although the Bank generally carries a limited open currency position, in accordance with the generalcurrency policy of the Bank, the Bank does calculate a capital requirement for the currency risk position ofthe Bank under the Standard Method; the rationale behind this capital requirement is the absence ofreinsurance of the non-cash commitments of the Bank mainly due to the structure of the Short-term ExportCredit Insurance Program.

Market Risk Sensitivity Tests

In accordance with the mission of the Bank, the Bank does not follow a profit-oriented strategy but ratherfollows a strategy aiming to avoid the eroding effects of inflation on the share capital by making a reasonableamount of profit. Under this framework, necessary changes to loan interest rates are made considering thechanges in cost of funds and market interest rates; changes in the interest rates are made using the expectedyear-end inflation levels as break-even point considering the return on equity at the same time. In thiscontext, the sensitivity analysis is also prepared under various scenarios (optimist, pessimist and normal) andalso under abnormal fluctuation (stress) assumptions which measure the sensitivity of the net profit to thechanges in market interest rates and the Bank’s loan interest rates. Moreover, possible losses arising frominterest rate and foreign exchange risk are calculated under various scenarios and in order to minimizepossible losses, the Bank undertakes swap transactions (especially currency and interest swaps).

103

The following table sets forth the average, maximum and minimum of calculated market risk during theyears ended 31 December 2011, 31 December 2010 and 31 December 2009, as per the Bank’s statutoryfinancial statements prepared for BRSA reporting purposes pursuant to the “Regulation on Measurement andAssessment of Capital Adequacy of Banks” published in Official Gazette No. 26333 dated 1 November 2006.

As at 31 December 2011–––––––––––––––––––––––––––––––

Average Maximum Minimum––––––––– ––––––––– –––––––––


Interest Rate Risk ................................................................................................................ 5,448 8,058 3,914Equity Share risk ................................................................................................................ – – –Currency Risk ...................................................................................................................... 33,383 42,765 30,664

––––––––– ––––––––– –––––––––Total Capital to be Employed for Market Risk (A) ............................................................ 38,831 50,823 34,578

––––––––– ––––––––– –––––––––Total Amount Subject to Market Risk (A*12.5) ............................................................ 485,387 635,287 432,224

––––––––– ––––––––– –––––––––––––––––– ––––––––– –––––––––

As at 31 December 2010 As at 31 December 2009––––––––––––––––––––––––––––––– –––––––––––––––––––––––––––––––

Average Maximum Minimum Average Maximum Minimum––––––––– ––––––––– ––––––––– ––––––––– ––––––––– –––––––––


Interest Rate Risk .......................... 3,781 5,371 3,097 3,343 3,765 1,999Equity Share risk ............................ – – – – – –Currency Risk ................................ 28,184 35,238 22,352 25,923 29,643 22,352

––––––––– ––––––––– ––––––––– ––––––––– ––––––––– –––––––––Total Capital to beEmployed for MarketRisk (A) ........................................ 31,965 40,609 25,449 29,266 33,408 24,351

––––––––– ––––––––– ––––––––– ––––––––– ––––––––– –––––––––Total Amount Subject toMarket Risk (A*12.5) ................ 399,562 507,613 318,113 365,825 417,600 304,388

––––––––– ––––––––– ––––––––– ––––––––– ––––––––– –––––––––––––––––– ––––––––– ––––––––– ––––––––– ––––––––– –––––––––

Currency risk

Foreign currency denominated assets and liabilities, together with lending and investment transactions, giverise to foreign exchange rate risk for the Bank on its results of operations, financial position and cash flows.The Bank’s foreign exchange positions are monitored daily and transactions are required to be executed byauthorized personnel within the limits determined by the risk management principles approved by the Boardof Directors of the Bank.

Maturity mismatches are monitored periodically for U.S. Dollar-denominated assets and liabilities(separately in each foreign currency and in total in U.S. Dollars) and Turkish Lira-denominated assets andliabilities using tables showing weighted average days to maturity, which are prepared periodically. Themismatching of maturities between assets and liabilities is evaluated using these tables.

The Bank seeks to match its assets and liabilities in terms of currency, maturity and interest basis. Withinthis framework, the Bank seeks to manage its debt issuance in order to match the Bank’s asset structure tothe extent possible. In cases where this is not possible, the Bank seeks to match its assets and liabilities usingcross-currency swaps, interest rate swaps or currency swaps, or by adjusting the structure of its assets, to theextent possible.

Exchange rate risk for each currency is separately monitored on a daily basis. The effects of the Bank’sactivities and market conditions on positions are closely monitored and measures deemed necessary aretaken promptly. Taking into account that all of the Bank’s borrowed funds are denominated in foreigncurrencies, the Bank engages in Turkish Lira against foreign currency (FX/TL) and foreign currency againstforeign currency (FX/FX) operations on a daily basis in order to manage foreign currency exposure. See“Management’s Discussion and Analysis of Financial Condition and Results of Operations—DerivativeFinancial Instruments.”

104

The Bank is permitted to accept a degree of foreign currency exposure within guidelines specified by theBRSA. Under these guidelines the ratio of the net long/short position (the difference between foreigncurrency liabilities and assets) to net worth must be no more than 20%. However, the Bank prefers tomaintain a square position. See the tables below for information on the Bank’s net balance sheet position inforeign currencies as at 31 December 2011, 31 December 2010 and 31 December 2009.

The tables below set forth the Bank’s exposure to foreign currency exchange rate risk as at 31 December2011, 31 December 2010 and 31 December 2009. The tables include the Bank’s assets, liabilities and equityat their respective carrying amounts, categorized by currency.

As at 31 December 2011––––––––––––––––––––––––––––––– –––––––––––––––––––––––––––––––

USD EUR JPY Other TL Total––––––––– ––––––––– ––––––––– ––––––––– ––––––––– –––––––––


Cash and due from banks .............. 78,986 103,297 1,384 1,789 481,913 667,369Trading securities .......................... 41,571 — — — 301,364 342,935Derivative financialinstruments.................................... 9 — 3 — 15,883 15,895

Loans and advances tocustomers ...................................... 4,247,885 1,199,808 8,296 6,404 2,534,821 7,997,214

Investment securities– Available-for-sale ........................ — — — — 11,295 11,295– Held-to-maturity .......................... 45,364 — — — 466,072 511,436Property and equipmentand intangible assets .................... — — — — 10,262 10,262

Other assets .................................... 5,042 8,954 — 15 12,727 26,738––––––––– ––––––––– ––––––––– ––––––––– ––––––––– –––––––––

Total assets .................................... 4,418,857 1,312,059 9,683 8,208 3,834,337 9,583,144––––––––– ––––––––– ––––––––– ––––––––– ––––––––– –––––––––––––––––– ––––––––– ––––––––– ––––––––– ––––––––– –––––––––

Funds borrowed .............................. 3,023,234 1,646,526 — — — 4,669,760Debt securities in issue .................. 960,419 — — — — 960,419Interbank money marketdeposits ........................................ — — — — 157,988 157,988

Derivative financialinstruments.................................... 12,547 — — — 10,770 23,317

Other liabilities .............................. 33,901 6,467 — — 71,672 112,040Reserve for employmenttermination benefits ...................... — — — — 11,560 11,560

Equity.............................................. 129 — — — 3,647,931 3,648,060––––––––– ––––––––– ––––––––– ––––––––– ––––––––– –––––––––

Total liabilities and equity............ 4,030,230 1,652,993 — — 3,899,921 9,583,144––––––––– ––––––––– ––––––––– ––––––––– ––––––––– –––––––––––––––––– ––––––––– ––––––––– ––––––––– ––––––––– –––––––––

Net balance sheet position............ 388,627 (340,934) 9,683 8,208 (65,584) —––––––––– ––––––––– ––––––––– ––––––––– ––––––––– –––––––––––––––––– ––––––––– ––––––––– ––––––––– ––––––––– –––––––––

Off balance sheet derivativeinstruments net notionalposition ........................................ (404,802) 333,855 6,699 — 56,603 (7,645)

––––––––– ––––––––– ––––––––– ––––––––– ––––––––– –––––––––––––––––– ––––––––– ––––––––– ––––––––– ––––––––– –––––––––

For purposes of the table above, at 31 December 2011, assets and liabilities denominated in foreign currencywere translated into Turkish lira using a foreign exchange rate of TL 1.9141 = USD 1 and TL 2.4730 =EUR 1.

105

As at 31 December 2010––––––––––––––––––––––––––––––– –––––––––––––––––––––––––––––––



Cash and due from banks .............. 86,336 306,495 229 105 493,606 886,771Trading securities .......................... 3,646 — — — 304,842 308,488Derivative financialinstruments.................................... 168 — — — 1,717 1,885

Loans and advances tocustomers ...................................... 2,039,988 699,839 11,770 6,441 1,348,237 4,106,275


Other assets .................................... 1,487 562 — 9 8,690 10,748––––––––– ––––––––– ––––––––– ––––––––– ––––––––– –––––––––

Total assets .................................... 2,182,487 1,006,896 11,999 6,555 3,021,629 6,229,566––––––––– ––––––––– ––––––––– ––––––––– ––––––––– –––––––––––––––––– ––––––––– ––––––––– ––––––––– ––––––––– –––––––––

Funds borrowed .............................. 804,071 994,641 — — — 1,798,712Derivative financialinstruments.................................... 3,982 — — — 21,182 25,164


Equity.............................................. 174 — — — 3,629,968 3,630,142––––––––– ––––––––– ––––––––– ––––––––– ––––––––– –––––––––

Total liabilities and equity............ 1,543,739 996,626 — — 3,689,201 6,229,566––––––––– ––––––––– ––––––––– ––––––––– ––––––––– –––––––––––––––––– ––––––––– ––––––––– ––––––––– ––––––––– –––––––––

Net balance sheet position............ 638,748 10,270 11,999 6,555 (667,572) —––––––––– ––––––––– ––––––––– ––––––––– ––––––––– –––––––––––––––––– ––––––––– ––––––––– ––––––––– ––––––––– –––––––––

Off balance sheet derivativeinstruments net notionalposition ........................................ (638,076) (10,284) — — 631,120 (17,240)

––––––––– ––––––––– ––––––––– ––––––––– ––––––––– –––––––––––––––––– ––––––––– ––––––––– ––––––––– ––––––––– –––––––––

For purposes of the table above, at 31 December 2010, assets and liabilities denominated in foreign currencywere translated into Turkish Lira using foreign exchange rate of TL 1.5416 = USD 1 and TL 2.0568 = EUR 1.

106

As at 31 December 2009––––––––––––––––––––––––––––––– –––––––––––––––––––––––––––––––



Cash and due from banks .............. 68,656 578,095 2,130 2,964 1,407,352 2,059,197Trading securities .......................... 3,332 — — — 146,817 150,149Derivative financialinstruments.................................... — — 8,692 — 7,856 16,548

Loans and advances tocustomers ...................................... 1,973,513 588,862 5,133 5,318 1,281,600 3,854,426


Other assets .................................... 2,248 278 — 8 12,345 14,879––––––––– ––––––––– ––––––––– ––––––––– ––––––––– –––––––––

Total assets .................................... 2,097,413 1,167,235 15,955 8,290 3,138,216 6,427,109––––––––– ––––––––– ––––––––– ––––––––– ––––––––– –––––––––––––––––– ––––––––– ––––––––– ––––––––– ––––––––– –––––––––

Funds borrowed .............................. 763,900 1,216,634 45,350 — — 2,025,884Derivative financialinstruments.................................... 5,186 — — — 103 5,289


Equity.............................................. 275 — — — 3,656,928 3,657,203––––––––– ––––––––– ––––––––– ––––––––– ––––––––– –––––––––

Total liabilities and equity............ 1,457,052 1,226,751 45,350 — 3,697,956 6,427,109––––––––– ––––––––– ––––––––– ––––––––– ––––––––– –––––––––––––––––– ––––––––– ––––––––– ––––––––– ––––––––– –––––––––

Net balance sheet position............ 640,361 (59,516) (29,395) 8,290 (559,740) —––––––––– ––––––––– ––––––––– ––––––––– ––––––––– –––––––––––––––––– ––––––––– ––––––––– ––––––––– ––––––––– –––––––––

Off balance sheet derivativeinstruments net notionalposition ........................................ (620,693) 42,942 35,361 — 561,014 18,624

––––––––– ––––––––– ––––––––– ––––––––– ––––––––– –––––––––––––––––– ––––––––– ––––––––– ––––––––– ––––––––– –––––––––

For purposes of the table above, at 31 December 2009, assets and liabilities denominated in foreign currencywere translated into Turkish Lira using foreign exchange rate of TL 1.4900 = USD 1 and TL 2.1471 = EUR 1.

As of 31 December 2011, 2010 and 2009, the effect of the devaluation of TL by 10% against other currenciesmentioned below, on net profit and equity of the Bank, are presented in the table below. The analysis coversall foreign currency denominated assets and liabilities. The other variables, especially interest rates areassumed to be fixed.

107

As at 31 December–––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––

2011 2010 2009–––––––––––––––––––– –––––––––––––––––––– ––––––––––––––––––––

Effect on Effect on Effect on Effect on Effect on Effect onNet Profit Equity Net Profit Equity Net Profit Equity


USD ................................................ (1,620) (1,607) (1,194) (1,176) 10,598 10,625EUR ................................................ (1,377) (1,377) 1,027 1,027 (5,952) (5,952)JPY.................................................. 968 968 1,200 1,200 (2,940) (2,940)Other currencies.............................. 822 822 656 655 829 829

––––––––– ––––––––– ––––––––– ––––––––– ––––––––– –––––––––Total .............................................. (1,207) (1,194) 1,689 1,706 2,535 2,562

––––––––– ––––––––– ––––––––– ––––––––– ––––––––– –––––––––––––––––– ––––––––– ––––––––– ––––––––– ––––––––– –––––––––

(1) Effect on equity also includes effect on net income.

As at 31 December 2011 and 2010, the effect of the appreciation of TL by 10% against other currencies, withall other variables held constant, on net profit and equity of the Bank is the same as the total amount with anegative sign as presented in the above table.

Interest rate risk

The Bank estimates the effects of changes in interest rates on the profitability of the Bank by analyzing itsTL and foreign currency denominated, interest sensitive assets and liabilities considering both their interestcomponents as being fixed rate or variable rate and also analyzing their weights among the Bank’s totalassets and liabilities. Long or short positions arising from interest rate risk are determined by currency atspecified maturity intervals (up to 3 months, 3 months to 1 year, 1 year to 5 years and over 5 years) usingthe period remaining to repricing date, considering that the repricing of TL and foreign currency-denominated, interest sensitive assets and liabilities will occur at the maturity date (in the case of fixed rateassets and liabilities) or at interest payment dates (for floating rate assets and liabilities). By classifyinginterest sensitive assets and liabilities according to their repricing dates, the Bank’s exposure to possiblevariations in market interest rates is determined and the interest sensitive gap or surplus for each periodremaining to contractual repricing dates is calculated. The resulting gap report is used to estimate how theBank will be affected by potential market rate changes.

According to the risk management policy approved by the Board of Directors, the Bank emphasizes thematching of assets and liabilities with fixed and floating interest rates in different currencies. The Bank alsopays special attention to the level of maturity mismatch of assets and liabilities with floating and fixedinterest rates in relation to the asset size of the Bank, in order to limit the negative effects of interest ratechanges on the Bank’s profitability. In that regard, under the risk management policy approved by the Boardof Directors, there is a 20% maximum limit on the ratio of mismatches of floating/fixed interest-bearingassets and liabilities to the total assets of the Bank.

Currently the Bank matches medium and long-term floating interest-bearing foreign currency denominatedassets to fixed interest-bearing liabilities denominated in another foreign currency by using interest rate andcross currency swaps. In addition, interest rate swaps have been used to cover the mismatch between mediumand long-term fixed rate bearing USD assets and medium and long-term USD liabilities.

Pricing of interest-bearing assets and liabilities

Interest rates are determined by the Bank in accordance with developments in money markets and varyaccording to repayment period and the total outstanding credit risk of the borrower. For short-term TL- andforeign currency-denominated export credits, the Bank’s pricing policy is to provide funding to exportersbelow local money market rates in order to assist them in funding their working capital needs and to helpsupport and promote Turkish exports. In 2011, the Bank estimates that it offered interest rates that wereapproximately 2 percentage points below market rates. As its non-interest bearing Turkish Lira denominatedcapital base is its main source of funding for TL-denominated loans, the Bank still earns a positive lendingspread on this type of lending.

108

Interest rates in respect of medium- and long-term foreign exchange credits are not subsidized. The Bankvaries the rate of interest charged on its medium- and long-term loans based upon the country and the projectbeing funded. The Bank aims to earn a positive spread over its average weighted cost of funds, allowing itto fully cover its overhead costs, but does not necessarily seek to earn a profit beyond such amount.

Unlike commercial banks, the Bank does not accept any retail or corporate deposits. A substantial portion ofthe Bank’s funding consists of capital contributions. As at 31 December 2011, the Bank charged on its short-term TL-denominated loans a weighted average, simple interest rate of 8.51% that would be an annualcompounded interest rate of 8.69%. The average market rate based on CBRT figures as at 31 December 2011was 10.8% (the weighted average interest rate for Turkish Lira bank loans). As at 31 December 2011, theBank charged on its foreign currency-denominated short-term loans a weighted average interest rate ofLIBOR plus 1.60%, which was higher than its average foreign exchange funding costs, which as at 31December 2011 were approximately LIBOR plus 1.01%.

Interest rate repricing gap analysis

The following tables set forth the carrying amounts of the Bank’s assets and liabilities, classified in terms ofperiods remaining to contractual repricing dates, as at 31 December 2011, 2010 and 2009.

As at 31 December 2011–––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––

NonUp to 3 months 1 year to Over interest

3 months to 1 year 5 years 5 years bearing Total––––––––– ––––––––– ––––––––– ––––––––– ––––––––– –––––––––


Cash and due from banks .............. 659,189 — — — 8,180 667,369Trading securities .......................... 63,279 207,159 32,855 39,642 — 342,935Derivative financialinstruments .................................. 12,892 3,003 — — — 15,895

Loans and advances tocustomers .................................... 4,137,735 3,779,769 79,710 — — 7,997,214

Investment securities– Available-for-sale ........................ — — — — 11,295 11,295– Held-to-maturity ........................ 224,795 196,179 90,462 — — 511,436Property and equipmentand intangible assets .................... — — — — 10,262 10,262

Other assets .................................... — — — — 26,738 26,738––––––––– ––––––––– ––––––––– ––––––––– ––––––––– –––––––––

Total assets .................................. 5,097,890 4,186,110 203,027 39,642 56,475 9,583,144––––––––– ––––––––– ––––––––– ––––––––– ––––––––– –––––––––––––––––– ––––––––– ––––––––– ––––––––– ––––––––– –––––––––

Funds borrowed ............................ 2,938,965 1,730,795 — — — 4,669,760Debt securities in issue .................. — — 960,419 — — 960,419Interbank money marketdeposit .......................................... 157,988 — — — — 157,988

Derivative financialinstruments .................................. 23,226 91 — — — 23,317

Other liabilities .............................. 13,085 14,674 3,630 — 80,651 112,040Reserve for employmenttermination benefits .................... — — — — 11,560 11,560

––––––––– ––––––––– ––––––––– ––––––––– ––––––––– –––––––––Total liabilities .............................. 3,133,264 1,745,560 964,049 — 92,211 5,935,084

––––––––– ––––––––– ––––––––– ––––––––– ––––––––– –––––––––Net repricing gap ........................ 1,964,626 2,440,550 (761,022) 39,642 (35,736) 3,648,060

––––––––– ––––––––– ––––––––– ––––––––– ––––––––– –––––––––––––––––– ––––––––– ––––––––– ––––––––– ––––––––– –––––––––

109

As at 31 December 2010–––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––

Non-Up to 3 months 1 year to Over interest



Cash and due from banks .............. 883,681 — — — 3,090 886,771Trading securities .......................... — 138,691 166,152 3,645 — 308,488Derivative financialinstruments .................................. 1,885 — — — — 1,885


Investment securities– Available-for-sale ........................ — — — — 15,202 15,202– Held-to-maturity ........................ 489,206 285,976 116,521 — — 891,703Property and equipmentand intangible assets .................... — — — — 8,494 8,494

Other assets .................................... — — — — 10,748 10,748––––––––– ––––––––– ––––––––– ––––––––– ––––––––– –––––––––

Total assets .................................. 3,184,642 2,682,253 321,492 3,645 37,534 6,229,566––––––––– ––––––––– ––––––––– ––––––––– ––––––––– –––––––––––––––––– ––––––––– ––––––––– ––––––––– ––––––––– –––––––––

Funds borrowed ............................ 1,605,707 193,005 — — — 1,798,712Derivative financialinstruments .................................. 24,887 277 — — — 25,164

Other liabilities .............................. 81,208 568,491 — — 114,993 764,692Reserve for employmenttermination benefits .................... — — — — 10,856 10,856

––––––––– ––––––––– ––––––––– ––––––––– ––––––––– –––––––––Total liabilities .............................. 1,711,802 761,773 — — 125,849 2,599,424

––––––––– ––––––––– ––––––––– ––––––––– ––––––––– –––––––––––––––––– ––––––––– ––––––––– ––––––––– ––––––––– –––––––––Net repricing gap ........................ 1,472,840 1,920,480 321,492 3,645 (88,315) 3,630,142

––––––––– ––––––––– ––––––––– ––––––––– ––––––––– –––––––––––––––––– ––––––––– ––––––––– ––––––––– ––––––––– –––––––––

As at 31 December 2009–––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––

Non-Up to 3 months 1 year to Over interest



Cash and due from banks .............. 2,054,795 — — — 4,402 2,059,197Trading securities .......................... 45,677 23,089 78,050 3,333 — 150,149Derivative financialinstruments.................................... 16,287 261 — — — 16,548

Loans and advances tocustomers ...................................... 1,773,344 2,077,818 3,264 — — 3,854,426

Investment securities– Available-for-sale ........................ — — — — 13,744 13,744– Held-to-maturity .......................... 207,922 51,131 19,024 30,991 — 309,068Property and equipmentand intangible assets .................... — — — — 9,098 9,098

Other assets .................................... — — — — 14,879 14,879––––––––– ––––––––– ––––––––– ––––––––– ––––––––– –––––––––

Total assets .................................... 4,098,025 2,152,299 100,338 34,324 42,123 6,427,109––––––––– ––––––––– ––––––––– ––––––––– ––––––––– –––––––––––––––––– ––––––––– ––––––––– ––––––––– ––––––––– –––––––––

Funds borrowed .............................. 689,306 1,336,578 — — — 2,025,884Derivative financialinstruments.................................... 4,647 642 — — — 5,289


––––––––– ––––––––– ––––––––– ––––––––– ––––––––– –––––––––Total liabilities .............................. 771,959 1,884,570 — — 113,377 2,769,906

––––––––– ––––––––– ––––––––– ––––––––– ––––––––– –––––––––Net repricing gap .......................... 3,326,066 267,729 100,338 34,324 (71,254) 3,657,203

––––––––– ––––––––– ––––––––– ––––––––– ––––––––– –––––––––––––––––– ––––––––– ––––––––– ––––––––– ––––––––– –––––––––

110

Interest rate sensitivity

The following tables set forth the range of effective average interest rates by major currencies for monetaryfinancial instruments of the Bank as at 31 December 2011, 2010 and 2009.

As at 31 December 2011–––––––––––––––––––––––––––––––––––––––––

USD EUR JPY TL––––––––– ––––––––– ––––––––– –––––––––

(in percentages)Assets:Cash and due from banks– Time deposits in foreign banks ............................................................ 0.35 0.64 — —– Time deposits in domestic banks ........................................................ — — — 10.13– Interbank money market placements .................................................. — — — 10.40Trading securities .................................................................................... 6.20 — — 7.99Loans and advances to customers .......................................................... 1.67 2.76 2.60 7.48Investment securities– Held-to-maturity .................................................................................. 6.77 — — 8.89Liabilities:Funds borrowed ...................................................................................... 0.75 2.50 — —Debt securities in issue............................................................................ 5.38 — — —Interbank money market deposits .......................................................... — — — 5.75

As at 31 December 2010–––––––––––––––––––––––––––––––––––––––––

USD EUR JPY TL––––––––– ––––––––– ––––––––– –––––––––

(in percentages)Assets:Cash and due from banks– Time deposits in foreign banks ............................................................ 0.44 0.6 — —– Time deposits in domestic banks ........................................................ — — — 6.43Trading securities .................................................................................... 7.05 — — 8.35Loans and advances to customers .......................................................... 2.68 3.16 3.22 8.49Investment securities– Held-to-maturity .................................................................................. 6.56 — — 7.52Liabilities:Funds borrowed ...................................................................................... 1.33 2.62 — —

As at 31 December 2009–––––––––––––––––––––––––––––––––––––––––

USD EUR JPY TL––––––––– ––––––––– ––––––––– –––––––––

(in percentages)Assets:Cash and due from banks– Time deposits in foreign banks ............................................................ 0.12 0.34 0.50 —– Time deposits in domestic banks ........................................................ — — — 7.19– Interbank money market placements- .................................................. — — — 6.50Trading securities .................................................................................... 7.05 — — 8.47Derivative financial instruments.............................................................. — — 2.26 —Loans and advances to customers .......................................................... 3.43 4.30 2.87 13.79Investment securities– Held-to-maturity .................................................................................. 6.56 — — 10.35Liabilities:Funds borrowed ...................................................................................... 2.57 3.69 2.03 —

111

The following table sets forth the effect of a hypothetical change in interest rates of (+) 1% and (-) 1%, withall other variables held constant, on the current period net profit of the Bank as at 31 December 2011, 2010and 2009 (with respect to the years ended 31 December 2011, 2010 and 2009). These amounts reflect theimpact of interest rate changes on monetary assets and liabilities only and include the impact of derivatives.

As at 31 December 2011 As at 31 December 2010 As at 31 December 2009–––––––––––––––––––– –––––––––––––––––––– ––––––––––––––––––––

(+) 1% (-) 1% (+) 1% (-) 1% (+) 1% (-) 1%Gain Gain Gain Gain Gain Gain(Loss) (Loss) (Loss) (Loss) (Loss) (Loss)Effect Effect Effect Effect Effect Effect


TL .................................................. (1,618) 1,537 (3,101) 2,728 (1,221) 1,030USD ................................................ 1,933 (1,776) 3,167 (3,172) 2,606 (3,002)EUR ................................................ 616 (715) 496 (207) (1,646) 1,643Other foreign currencies ................ 32 (34) 46 (50) 28 (28)

––––––––– ––––––––– ––––––––– ––––––––– ––––––––– –––––––––Total effect .................................... 963 (988) 608 (701) (233) (357)

––––––––– ––––––––– ––––––––– ––––––––– ––––––––– –––––––––––––––––– ––––––––– ––––––––– ––––––––– ––––––––– –––––––––

Liquidity risk

A major objective of the Bank’s asset and liability management is to ensure that sufficient liquidity isavailable to meet the Bank’s commitments and to satisfy the Bank’s own liquidity needs. The Bank measuresand manages its cash flow commitments on a daily basis, and maintains a level of liquid assets determinedby the Board of Directors to be sufficient to meet its commitments.

The matching and controlled mismatching of the maturities and interest rates of assets and liabilities isfundamental to the liquidity management of the Bank. The ability to fund the Bank’s existing and prospectivedebt requirements is managed by maintaining sufficient cash and marketable securities and the availabilityof funding is ensured by maintaining an adequate amount of committed credit lines and the ability to closeout market positions. It is unusual for banks to be completely matched since the maturity, interest rates andthe types of business transactions are different. An unmatched position potentially enhances profitability, butalso increases the risk of losses. The maturities of assets and liabilities and the ability to replace, at anacceptable cost, interest-bearing liabilities as they mature, are important factors in assessing the liquidity ofthe Bank and its exposure to changes in interest rates and exchange rates.

The Bank uses TL and foreign currency cash flow schedules prepared weekly, monthly and annually in theliquidity management decision making process. In order to manage risks to its liquidity from interest andexchange rate exposure, the Bank’s funding strategy is generally to match asset and liability maturities to theextent possible. The Bank tries to minimize mismatches by financing short-term loans with short-term fundsand long-term loans with long-term funds.

Long-term lending requirement is generally met by funds raised from international financial institutions suchas the World Bank and may include the issuance of bonds in the international capital markets.

112

The following tables set forth, as at 31 December 2011, 31 December 2010 and 31 December 2009, theassets and liabilities of the Bank by relevant maturity grouping based on the remaining period, as at theapplicable balance sheet date, to the contractual maturity dates.

As at 31 December 2011–––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––

Demandand up to 3 months 1 year to Over No stated3 months to 1 year 5 years 5 years maturity Total


Cash and due from banks .............. 667,369 — — — — 667,369Trading securities .......................... 63,279 207,159 32,855 39,642 — 342,935Derivative financialinstruments .................................. 12,892 3,003 — — — 15,895


Investment securities– Available-for-sale ........................ — — — — 11,295 11,295– Held-to-maturity ........................ 180,364 77,893 164,583 88,596 — 511,436Property and equipmentand intangible assets ..................- — — — — 10,262 10,262

Other assets .................................... — 11,599 15,139 — — 26,738––––––––– ––––––––– ––––––––– ––––––––– ––––––––– –––––––––

Total assets .................................. 4,455,664 4,129,761 847,924 128,238 21,557 9,583,144––––––––– ––––––––– ––––––––– ––––––––– ––––––––– –––––––––––––––––– ––––––––– ––––––––– ––––––––– ––––––––– –––––––––

Funds borrowed ............................ 2,260,587 1,836,534 207,630 365,009 — 4,669,760Debt securities in issue .................. — — 960,419 — — 960,419Interbank market deposits ............ 157,988 — — — — 157,988Derivative financialinstruments .................................. 23,226 91 — — — 23,317

Other liabilities .............................. 13,085 44,674 54,281 — — 112,040Reserve for employmenttermination benefits .................... 11,560 — — — — 11,560

––––––––– ––––––––– ––––––––– ––––––––– ––––––––– –––––––––Total liabilities .............................. 2,466,446 1,881,299 1,222,330 365,009 — 5,935,084

––––––––– ––––––––– ––––––––– ––––––––– ––––––––– –––––––––––––––––– ––––––––– ––––––––– ––––––––– ––––––––– –––––––––Net liquidity gap .......................... 1,989,218 2,248,462 (374,406) (236,771) 21,557 3,648,060

––––––––– ––––––––– ––––––––– ––––––––– ––––––––– –––––––––––––––––– ––––––––– ––––––––– ––––––––– ––––––––– –––––––––

113

As at 31 December 2010–––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––



Cash and due from banks .............. 883,681 — — — 3,090 886,771Trading securities .......................... — 138,690 166,152 3,646 — 308,488Derivative financialinstruments .................................. 1,885 — — — — 1,885

Loans and advances tocustomers .................................... 1,462,815 2,361,072 276,548 5,840 — 4,106,275

Investment securities– Available-for-sale ........................ — — — — 15,202 15,202– Held-to-maturity ........................ 355,919 273,898 190,874 71,012 — 891,703Property and equipmentand intangible assets .................... — — — — 8,494 8,494

Other assets .................................... — — — — 10,748 10,748––––––––– ––––––––– ––––––––– ––––––––– ––––––––– –––––––––

Total assets .................................. 2,704,300 2,773,660 633,574 80,498 37,534 6,229,566––––––––– ––––––––– ––––––––– ––––––––– ––––––––– –––––––––––––––––– ––––––––– ––––––––– ––––––––– ––––––––– –––––––––

Funds borrowed ............................ 599,643 840,263 133,064 225,742 — 1,798,712Derivative financialinstruments .................................. 21,182 277 3,705 — — 25,164

Other liabilities .............................. 81,208 568,491 — — 114,993 764,692Reserve for employmenttermination benefits .................... — — — — 10,856 10,856

––––––––– ––––––––– ––––––––– ––––––––– ––––––––– –––––––––Total liabilities .............................. 702,033 1,409,031 136,769 225,742 125,849 2,599,424

––––––––– ––––––––– ––––––––– ––––––––– ––––––––– –––––––––––––––––– ––––––––– ––––––––– ––––––––– ––––––––– –––––––––Net liquidity gap .......................... 2,002,267 1,364,629 496,805 (145,244) (88,315) 3,630,142

––––––––– ––––––––– ––––––––– ––––––––– ––––––––– –––––––––––––––––– ––––––––– ––––––––– ––––––––– ––––––––– –––––––––

As at 31 December 2009–––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––



Cash and due from banks .............. 2,054,795 — — — 4,402 2,059,197Trading securities .......................... 45,677 23,089 78,050 3,333 — 150,149Derivative financialinstruments.................................... 7,596 8,952 — — — 16,548

Loans and advances tocustomers ...................................... 1,520,708 2,118,524 207,358 7,836 — 3,854,426

Investment securities– Available-for-sale ........................ — — — — 13,744 13,744– Held-to-maturity .......................... 138,896 57,389 81,792 30,991 — 309,068Property and equipmentand intangible assets .................... — — — — 9,098 9,098

Other assets .................................... — — — — 14,879 14,879––––––––– ––––––––– ––––––––– ––––––––– ––––––––– –––––––––

Total assets .................................... 3,767,672 2,207,954 367,200 42,160 42,123 6,427,109––––––––– ––––––––– ––––––––– ––––––––– ––––––––– –––––––––––––––––– ––––––––– ––––––––– ––––––––– ––––––––– –––––––––

Funds borrowed .............................. 509,954 1,131,100 177,630 207,200 — 2,025,884Derivative financialinstruments.................................... 1,614 960 266 2,449 — 5,289


––––––––– ––––––––– ––––––––– ––––––––– ––––––––– –––––––––Total liabilities .............................. 589,574 1,679,410 177,896 209,649 113,377 2,769,906

––––––––– ––––––––– ––––––––– ––––––––– ––––––––– –––––––––––––––––– ––––––––– ––––––––– ––––––––– ––––––––– –––––––––Net liquidity gap .......................... 3,178,098 528,544 189,304 (167,489) (71,254) 3,657,203

––––––––– ––––––––– ––––––––– ––––––––– ––––––––– –––––––––––––––––– ––––––––– ––––––––– ––––––––– ––––––––– –––––––––

114

The following tables set forth, as at 31 December 2011, 31 December 2010 and 31 December 2009, theundiscounted cash flows of the financial liabilities of the Bank (other than derivative transactions, which arepresented further below) by relevant maturity grouping based on the remaining period, as at the applicablebalance sheet date, to the contractual maturity dates.

As at 31 December 2011–––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––



Funds borrowed .............................. 2,265,361 1,875,871 345,535 457,591 — 4,944,358Debt securities in issue .................. — 52,442 1,165,674 — — 1,218,116Interbank money marketdeposits ........................................ 158,824 — — — — 158,824

Other financial liabilities ................ 36,311 7,652 3,630 — 50,450 98,043––––––––– ––––––––– ––––––––– ––––––––– ––––––––– –––––––––

Total financial liabilities .............. 2,460,496 1,935,965 1,514,839 457,591 50,450 6,419,341––––––––– ––––––––– ––––––––– ––––––––– ––––––––– –––––––––––––––––– ––––––––– ––––––––– ––––––––– ––––––––– –––––––––

As at 31 December 2010–––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––



Funds borrowed .............................. 220,593 1,266,100 130,959 257,250 — 1,874,902Other financial liabilities ................ 102,390 568,767 3,706 — 125,849 800,712

––––––––– ––––––––– ––––––––– ––––––––– ––––––––– –––––––––Total financial liabilities .............. 322,983 1,834,867 134,665 257,250 125,849 2,675,614

––––––––– ––––––––– ––––––––– ––––––––– ––––––––– –––––––––––––––––– ––––––––– ––––––––– ––––––––– ––––––––– –––––––––

As at 31 December 2009–––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––



Funds borrowed .............................. 513,266 1,163,798 222,421 229,541 — 2,129,026Other financial liabilities ................ 79,620 548,310 266 2,449 113,377 744,022

––––––––– ––––––––– ––––––––– ––––––––– ––––––––– –––––––––Total financial liabilities .............. 592,886 1,712,108 222,687 231,990 113,377 2,873,048

––––––––– ––––––––– ––––––––– ––––––––– ––––––––– –––––––––––––––––– ––––––––– ––––––––– ––––––––– ––––––––– –––––––––

115

The following tables set forth the undiscounted cash inflows and outflows of derivative transactions of theBank as at 31 December 2011, 31 December 2010 and 31 December 2009.

As at 31 December 2011––––––––––––––––––––––––––––––––––––––––––––––––––––

Up to 3 months 1 year to Over3 months to 1 year 5 years 5 years Total


Derivatives held for trading:Foreign exchange derivatives:– Outflow .................................................................... 1,208,387 — — — 1,208,387– Inflow ...................................................................... 1,200,742 — — — 1,200,742Interest rate derivatives:– Outflow .................................................................... 1,529 1,529 6,802 — 9,860– Inflow ...................................................................... 712 832 3,403 — 4,947

––––––––– ––––––––– ––––––––– ––––––––– –––––––––Total outflow .............................................................. 1,209,916 1,529 6,802 — 1,218,247

––––––––– ––––––––– ––––––––– ––––––––– –––––––––––––––––– ––––––––– ––––––––– ––––––––– –––––––––Total inflow ................................................................ 1,201,454 832 3,403 — 1,205,689

––––––––– ––––––––– ––––––––– ––––––––– –––––––––––––––––– ––––––––– ––––––––– ––––––––– –––––––––

As at 31 December 2010––––––––––––––––––––––––––––––––––––––––––––––––––––



Derivatives held for trading:Foreign exchange derivatives:– Outflow .................................................................... 668,431 29,800 — — 698,231– Inflow ...................................................................... 661,972 — — — 661,972Interest rate derivatives:– Outflow .................................................................... 570 953 5,450 — 6,973– Inflow ...................................................................... 1,232 1,856 7,941 — 11,029

––––––––– ––––––––– ––––––––– ––––––––– –––––––––Total outflow .............................................................. 669,001 30,753 5,450 — 705,204

––––––––– ––––––––– ––––––––– ––––––––– –––––––––––––––––– ––––––––– ––––––––– ––––––––– –––––––––Total inflow ................................................................ 663,204 1,856 7,941 — 673,001

––––––––– ––––––––– ––––––––– ––––––––– –––––––––––––––––– ––––––––– ––––––––– ––––––––– –––––––––

As at 31 December 2009––––––––––––––––––––––––––––––––––––––––––––––––––––



Derivatives held for trading:Foreign exchange derivatives:– Outflow .................................................................... 563,861 29,800 — — 593,661– Inflow ...................................................................... 573,206 30,750 — — 603,956Interest rate derivatives:– Outflow .................................................................... 8,266 22,944 9,633 1,026 41,869– Inflow ...................................................................... 9,747 28,238 7,833 1,070 46,888

––––––––– ––––––––– ––––––––– ––––––––– –––––––––Total outflow .............................................................. 572,127 52,744 9,633 1,026 635,530

––––––––– ––––––––– ––––––––– ––––––––– –––––––––––––––––– ––––––––– ––––––––– ––––––––– –––––––––Total inflow ................................................................ 582,953 58,988 7,833 1,070 650,844

––––––––– ––––––––– ––––––––– ––––––––– –––––––––––––––––– ––––––––– ––––––––– ––––––––– –––––––––

116

Operational risk

Operational risk is the risk of loss due to human or system errors, incompatibility or failure of internalbusiness processes, or external events. Operational risk can result from a variety of factors, including failureto obtain proper internal authorization, failure to document transactions properly, failure of operational andinformation security procedures or other procedural failures, computer system or software failures, otherequipment failures, fraud and inadequate training or errors by employees.

The Bank seeks to minimize losses from operational risk by establishing effective internal control systemswhich prevent or detect all errors and situations which might cause loss through failure of people orprocesses in such a way that losses are avoided or reduced to the minimum possible extent.

The Bank has established internal control mechanisms in order to be able to manage the operational risksand these mechanisms are monitored and periodically audited by the internal audit and inspection unit of theBank. Financial losses occurring as a result of operational risk together with the underlying reasons arereported to the Audit Committee, senior management of the Bank and the Board of Directors by the RiskManagement Department and necessary actions are taken according to decisions made by the Board ofDirectors.

For regulatory purposes and for purposes of the statutory capital adequacy ratio, the Bank calculates theamount subject to operational risk based on the last 3 years’ gross income of the Bank using the basicindicator method in accordance with the “The Calculation of the Amount Subject to Operational Risk”Arrangement under the “Regulation Regarding Measurement and Evaluation of Banks’ Capital AdequacyRatio” published in the Official Gazette No. 26333 dated 1 November 2006. As at 31 December 2011, thetotal amount subject to operational risk, calculated in this manner, was TL 788.7 million. In the frameworkof Basel II, the Bank has used the basic indicator approach in calculating the amount subject to operationalrisk since June 30, 2007.

Legal risk includes the possibility that transactions may not be enforceable under applicable law orregulation and also the possibility that changes in Turkish law and regulation may adversely affect the Bank’sposition. The Bank seeks to minimize legal risk by using standard forms of documentation, by seeking toensure that transactions are properly authorized and by reviewing its legal position following a change in law.

117

MANAGEMENT

Supreme Advisory and Credit Guidance Committee

The Bank’s affairs are overseen by the Supreme Advisory and Credit Guidance Committee, which is chairedby the Deputy Prime Minister. The Supreme Advisory and Credit Guidance Committee fixes upper limits ofcredits to be extended by the Bank, guarantees to be issued and insurance transactions to be effected, eitheras a total amount or by country, sector and program.

The Supreme Advisory and Credit Guidance Committee, as at the date of this Offering Memorandum, iscomprised of the following ex officio members:

Name Position(s)––––––––––––––––––––––––––––––– –––––––––––––––––––––––––––––––––––––––––––––––––––––Ali Babacan .......................................... Deputy Prime Minister and Chairman of the Supreme Advisory and

Credit Guidance CommitteeKemal Madenoğlu ................................ Undersecretary of the Ministry of DevelopmentIbrahim Halil Çanakcı .......................... Undersecretary of the TreasuryAhmet Yakıcı ........................................ Undersecretary of the Ministry of EconomyErsan Aslan .......................................... Undersecretary of the Ministry of Science, Industry and TechnologyNaci Ağbal ............................................ Undersecretary of the Ministry of FinanceErdem Başçı ........................................ Governor of the Central Bank of the Republic of TurkeyCavit Dağdaş ........................................ Acting Chairman of the Board of Directors of the BankHayrettin Kaplan .................................. General Manager

Board of Directors

The Bank is managed by a Board of Directors consisting of seven members, including the General Manager.The Board of Directors meets twice a month and as part of its role, is required to take into account the statusof the national economy, recent governmental decisions, laws and regulations, the scope of the Bank’sactivities along with the decisions and advisory guidance from the Supreme Advisory and Credit GuidanceCommittee. The Board of Directors presents annual programs to the SupremeAdvisory and Credit GuidanceCommittee. If required, the Board of Directors may delegate part of its authority to Senior Management,provided that limits of authority are clearly established. The delegation of authority, however, does notdischarge the Board of Directors of its overall responsibilities.

The Bank’s General Manager is appointed by a joint decree of the State Minister in charge (currently theDeputy Prime Minister), the Prime Minister and the President of the Republic of Turkey. The other sixDirectors are directly appointed by the Deputy Prime Minister. If the Treasury were to transfer some or allof the B Class shares, however, a first meeting of the General Assembly of the Bank would be held, in whichfour of the six Directors would be elected by the holders of the Class A shares and the remaining two wouldbe elected by the holders of the B Class shares. The Chairman andActing Chairman of the Board of Directorsare elected from the members of the Board of Directors.

The Board of Directors of the Bank, as at the date of this Offering Memorandum, is comprised of thefollowing members:

Name Position(s)––––––––––––––––––––––––––––––– –––––––––––––––––––––––––––––––––––––––––––––––––––––Cavit Dağdaş ........................................ Acting Chairman and Member of the Audit CommitteeHayrettin Kaplan .................................. General ManagerZiya Altunyaldiz .................................. DirectorOğuz Satici .......................................... DirectorMehmet Büyükekşi .............................. DirectorAdnan Ersoy Ulubaş ............................ DirectorA. Doğan Arikan .................................. Director and Member of the Audit Committee

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Cavit Dağdaş, Acting Chairman of the Board of Directors. Born in 1955 in Siirt, Mr. Dağdaş holds a BSin Mathematics from Boğaziçi University, an MSc in Statistics from Gazi University and an MA inEconomics from Western Michigan University. Mr. Dağdaş has held various positions in the public sector,such as Acting General Manager to the State Planning Organization and Counselor at the Central Bank ofthe Republic of Turkey. He is currently the Deputy Undersecretary of Treasury. Mr. Dağdaş has been amember of the Board of Directors since 6 January 2005 and member of the Audit Committee since 31October 2006. Mr. Dağdaş was appointed Acting Chairman of the Board of Directors on 8 January 2008.

Hayrettin Kaplan, General Manager. Born in 1963 in Mersin, Mr. Kaplan holds a degree in Economicsfrom Marmara University, a masters degree in Economics from Northeastern University in Boston, and aPh.D degree from the School of Banking and Insurance Institute at Marmara University. Mr. Kaplan wasAssistant Sworn Bank Auditor for the Board of Sworn Bank Auditors at the Undersecretariat of Treasuryfrom 1987 to 1990 and Chief Sworn Bank Auditor from 1990 to 2000. Mr. Kaplan served as AssistantGeneral Manager at Türkiye Finans Katilim Bankasi from 2000 to 2006, President of the Black Sea Tradeand Development Bank from 2006 to July 2010 and was a member of the board of directors of Ziraat Bankfrom July 2010 to February 2011. Mr. Kaplan was appointed as General Manager on 11 February 2011.

Ziya Altunyaldiz, Member of the Board of Directors. Born in 1963 in Konya, Mr. Altunyaldiz received aBachelor’s degree in Law from Istanbul University, a masters degree in International BusinessAdministration from West Coast University and a postgraduate diploma in International ComparativeCommercial Law from London Guildhall University. Mr. Altunyaldiz started his professional career at theState Planning Organization as Assistant Expert in 1989 and worked as specialist, Branch Manager, Head ofDepartment, Assistant General Manager, General Manager and Deputy Undersecretary in Undersecretariatfor Foreign Trade. He has also held the position of Commercial Counselor in the Turkish Embassy inLondon. Mr. Altunyaldiz was appointed as Undersecretary of Customs on 11 November 2010. Mr.Altunyaldiz has been a member of the Board of Directors of Türk Eximbank since 22 February 2010.

Oğuz Satıcı, Member of the Board of Directors. Born in 1965 in Istanbul, Mr. Satıcı holds a BSc inManagement from Washington International University. Mr. Satıcı previously served as President of theTurkish Exporters’ Assembly (TIM), member of the board of directors of the Economic DevelopmentFoundation (IKV) and Chairman of the board of directors of Istanbul Textile and Raw Material Exporters’Association (ITHIB). He has also held the position of Assembly Member of the Istanbul Chamber ofIndustry and Istanbul Chamber of Commerce. Mr. Satıcı has been a member of the Board of Directors of theBank since 12 March 2002.

Mehmet Büyükekşi, Member of the Board of Directors. Born in 1961 in Gaziantep, Mr. Büyükeksigraduated from the Faculty of Architecture at Yildiz Technical University. Mr. Büyükeksi previously servedas Chairman of the board of directors of the Turkish Footwear Industry Research, Development andEducation Foundation (TASEV), the Turkish Shoes Industrialists’ Association (AYSAD) and the IstanbulLeather and Leather Products Exporters’Association (IDMIB). He has also served as a member of the boardsof directors of the Turkish Leather Foundation (TÜRDEV), TOBTIM International Business Centers andCorporation of TOBB-BIS Organized Industrial and Technology Regions. In addition to being a member ofthe board of directors of the Bank, Mr. Büyükeksi is currently member of the boards of directors of TurkishDo & Co at the Istanbul Development Agency, IDMIB and Turkish Airlines A.O. He is a member of theAssembly of the Istanbul Chamber of Industry and General Coordinator of Ziylan Group. Mr. Büyükeksi hasbeen President of the Turkish Exporters’ Assembly since September 2008 and a member of the Board ofDirectors in Türk Eximbank since 24 October 2002.

Adnan Ersoy Ulubaş, Member of the Board of Directors. Born in 1966 in Afyon, Mr. Ulubas graduatedfrom the Faculty of Economics at Anadolu University. He is the founder, member of the board of directorsand Chairman of several private companies. Mr. Ulubas previously served as a member of the Assembly ofthe Kayseri Chamber of Industry, Vice President of the Turkish Exporters’ Assembly (TIM) and was alsoAccountant at TIM. He is currently a member of the Chairman Committee at the Mediterranean ExportersUnions and Chairman of the board of directors of the Ferrous and Non-Ferrous Metals Exporters’Association of the Mediterranean Exporters Union. Mr. Ulubas has been a member of the Board of Directorsof the Bank since 26 February 2003.

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A. Doğan Arıkan, Member of the Board of Directors. Born in 1949 in Ankara, Mr. Arıkan graduated fromthe Department of Business Administration at the Middle East Technical University. He started hisprofessional career at the Turkish State Meteorological Service and worked as Chief System Analyst andActing Assistant Manager of Research and Development. He served on the Board of Inspectors of Isbankwhere he held positions in various departments, including the Loans Department. Mr. Arıkan has previouslyheld the position of Chief Executive Officer of Mepa Dis Ticaret ve Pazarlama A.Ş., Izmir Demir ÇelikSanayii A.S. and, Sisecam. Mr. Arıkan has been a member of the board of directors and Deputy Chairmanof Anadolu Insurance Company since November 2009. Mr. Arıkan was appointed to the Board of Directorsof the Bank on 12 February 2008 and as member of the Audit Committee on 14 December 2009.

Senior Management

As at the date of this Offering Memorandum, the Bank’s senior managers were as follows:

Name Position Responsibility––––––––––––––––––––––––––––––– –––––––––––––––––––––––––––––––– ––––––––––––––––––Hayrettin Kaplan .................................. General Manager General ManagerMesut Gürsoy ...................................... Assistant General Manager Export CreditsAlaaddin Metin .................................... Assistant General Manager Country Credits

Acting Assistant General Manager InsuranceErtan Tanrıyakul .................................. Assistant General Manager Finance;

Risk Analysis andEvaluation

Necati Yeniaras .................................... Assistant General Manager CoordinationAhmet Kopar ........................................ Assistant General Manager IT/Support

Mesut Gürsoy. Assistant General Manager. Born in 1963 in Ortakoy, Aksaray, Mr. Gürsoy holds a BAdegree in Business Administration from the Faculty of Political Sciences from the University of Ankara. Hestarted his professional career as Assistant Expert at the Development Bank of Turkey (DBT) (formerly theState Industry and Laborer Investment Bank of Turkey) in 1986. From 1986 to 1993, Mr. Gürsoy helddifferent positions at DBT. Mr. Gürsoy was appointed Assistant Manager in the Project AppraisalDepartment of the Bank in 1993 and held various positions at the Bank, including Izmir Branch Managerfrom July 2004. Mr. Gürsoy was appointed as Assistant General Manager in charge of Export Credits in July2011.

Alaaddin Metin. Assistant General Manager. Born in 1964 in Antalya, Mr. Metin holds an MA inEconomics from Ankara University. He started his professional career in 1985 as Assistant Specialist in theProject Assessment Department of the State Investment Bank. Later, he worked in the Research Departmentand participated in the reorganization activities of the State Investment Bank to the Bank as an export creditagency. Mr. Metin has held several managerial positions in different departments of the Bank includingAssistant Manager, Manager, and Head of Department. He was appointed as Assistant General Manager incharge of Country Credits on 15 July 2011 andActingAssistant General Manager for Insurance on 20 March2012.

Ertan Tanrıyakul. Assistant General Manager. Born in 1962 in İstanbul, Mr. Tanrıyakul holds a degree inEconomics from the Middle East Technical University. He started his professional career as an AssistantSpecialist with the Project Evaluation Department of the State Investment Bank, the Bank’s predecessor, andheld various positions in different departments of the Bank. Mr. Tanrıyakul has served as Assistant GeneralManager in charge of Finance since March 1998 and has also recently been placed in charge of the RiskAnalysis and Evaluation Department.

Necati Yeniaras. Assistant General Manager. Born in 1962 in Kars, Mr. Yeniaras holds a BA in ForeignTrade and International Operations and an MA in Economics from Gazi University. He started hisprofessional career in the accounting department of a private company. He has held different positions at theDevelopment Bank of Turkey. He was an Economic Advisor to the State Minister in charge of Economy andto Turkish Iron and Steel Works. Mr. Yeniaras has served as Assistant General Manager since 1 October

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1997. Mr.Yeniaras served on the Board of Directors of the Bank and asActing General Manager fromMarch2010 to February 2011.

Ahmet Kopar. Assistant General Manager. Born in Elazığ in 1955, Mr. Kopar graduated from theMathematical Engineering Department of Karadeniz Technical University. He also holds an MSc from theInstitute of Statistics of the Academy of Economics and Commercial Sciences. After working for the ITDepartment of the State Meteorological Service for nine years, Mr. Kopar joined the Bank in 1987. Mr.Kopar has held various positions at the Bank, ranging from Expert to Head of IT. Mr. Kopar participated tomany of the Bank’s information technology projects, such as the Bank’s Document Management System andDisaster Recovery System. He was appointed as Assistant General Manager in charge of IT/Support in July2011.

Board Committees

The Board of Directors of the Bank has established an audit committee, an executive committee and a creditcommittee.

Audit Committee

The Audit Committee is responsible for ensuring the efficiency and adequacy of the internal control, riskmanagement and internal audit systems of the Bank, as well as monitoring the operations, integrity andcompliance of the Bank’s internal systems, accounting and reporting systems in line with relevant legislation.In addition, the Audit Committee assists the Board of Directors in the process of appointing independentauditors, rating institutions, evaluation and support services firms. The Audit Committee performs the pre-assessment of potential candidates and regularly reviews the activities of the institutions selected by theBoard of Directors.

The Bank’s Audit Committee is composed of two members, Mr. Cavit Dağdaş and Mr. A. Doğan Arikan,who are both also members of the Board of Directors.

The Audit Committee was established by the Board of Directors on 31 October 2006. The Board approvedthe Decree on the Procedure and Principles of the Operations of the Audit Committee, setting out theresponsibilities and procedures of the Audit Committee, on 5 February 2007.

Executive Committee

The Executive Committee takes to the Board of Directors a variety of issues for its consideration andapproval, including analyses and evaluations of draft arrangements on credit principles and technical andadministrative issues. The Executive Committee’s main responsibilities are: asset/liability management;evaluating credit applications for both domestic and overseas projects, and submitting eligible ones to theBoard of Directors for approval; and completing assigned duties from the Board of Directors. The ExecutiveCommittee submits to the Board of Directors, on at least a quarterly basis, reports on the balance sheet,income statements, financial structure, and placement and funding activities.

The Executive Committee is chaired by Mr. Hayrettin Kaplan, General Manager, and is composed of all themembers of Senior Management named above.

The Executive Committee was established by the Board of Directors on 6 August 1997.

Credit Committee

The Credit Committee is responsible for approving credit allocations within the limits stipulated by theBoard of Directors. Accordingly, short-term Turkish Lira and foreign currency credit applications under 1%of the company’s shareholders’ equity are evaluated and approved by the Credit Committee after theirsubmission by the Credit Department. The Credit Committee meets at least once a week.

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The Credit Committee is chaired by Mr. Hayrettin Kaplan, General Manager, and is composed of Mr. MesutGürsoy, Assistant Manager in charge of Export Credits, and Mr. Ertan Tanriyakul, Assistant Manager incharge of Finance.

Corporate Governance

The Bank recognizes the importance of maintaining sound corporate governance practices. The Bank’scorporate governance practices meet the mandatory requirements imposed by the laws of Turkey, the BRSAand other applicable regulations, as well as the Articles of Association of the Bank. The Bank’s corporategovernance practices are based on best international practices and form a framework which seeks to ensureconsistency and efficiency in the Board’s practices and the governance of the Bank. The Bank’s corporategovernance practices also seek to ensure strategic direction, management supervision and adequate controlof the Bank with the ultimate goal of increasing the long-term value of the Bank and protecting its mission,vision and strategy. See “Business—Strategy.”

Until very recently, there were no mandatory corporate governance rules in Turkey. However, the CMBpublished recently the Communiqué on the Principles Regarding Determination and Application ofCorporate Governance Rules which set forth the corporate governance rules for listed companies. Given thatthe Bank is not a listed company, such regulations are not binding on the Bank. The Bank follows the rulesset forth in the Bank’s annual programs which are approved by the Supreme Advisory and Credit GuidanceCommittee. In the Bank’s annual program for 2012, which takes into account the Turkish government’sannual program and the effects of the global financial crisis on Turkish production sectors and economy, theprinciples and objectives of the Bank in export financing are set forth, including:

• Within the scope of Basel and following research on the establishment, improvement andimplementation of risk management systems by other export credit agencies during the global crisis,establish a bespoke rating system for the Bank;

• Closely monitor the World Trade Organization (WTO), Organization for Economic Co-operation andDevelopment (OECD) and European Union (EU) with respect to guidelines on applications for credit,insurance and guarantee programs, and revise the Bank’s programs in line with regulations of WTO,OECD and EU;

• Maintain a financially sound structure in terms of capital adequacy, liquidity, profitability and assetquality so that the Bank will have the same credit ratings as the Turkish Treasury and to borrow in theinternational markets at the best available prevailing rates;

• Conduct activities transparently, promote transparency and ethical behavior among the Bank’semployees (through publication of ethical principles on the Bank’s intranet) and make all relevantinformation available for customers and other parties via the Bank’s website.

Environment

The Bank has been implementing environmental guidelines in compliance with the OECD Recommendationon Environment and Officially Supported Export Credits and which have been agreed upon by the OECDExport Credits and Credit Guarantees Group. These environmental guidelines will be applicable to projectsor project-related goods and services which have a total value of SDR 10 million and have a repaymentperiod of two years or more under the credit, insurance and guarantee programs.

OECD Anti-Bribery Convention

To prevent bribery in international business transactions, 28 member countries of the OECD along withArgentina, Brazil, Bulgaria, Chile and the Slovak Republic agreed on “the Convention on Combating Briberyof Foreign Public Officials in International Business Transactions” (the “Convention”) on 21 November1997. After the signing of the Convention by Turkey in December 1997, the Convention was ratified by theTurkish National Assembly on 1 February 2000 with the Act No. 4518.

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After the enactment of the Convention, the Export Credits and Credit Guarantees Group (“ECG”) of theOECD, in which Turkey is represented by the Undersecretariat of Treasury and the Bank, implementedprocedures and practices for exchanging information among the member countries in 1998. In this respect,the ECG’s efforts resulted in the “Action Statement on Bribery and Officially Supported Export Credits”(“Action Statement”) being put into effect in 2000.

Upon reviewing the Action Statement, member countries reached a consensus for its improvement and arevised Action Statement which was agreed on in 2006 included clauses for enhancing measures to be takenby the member countries for combating the bribery of foreign public officials in international businesstransactions benefitting from official export credit support. The Action Statement was converted into anOECD Recommendation by the Council Decision dated 14 December 2006.

With respect to efforts to harmonize Turkish legislation with the OECD legislation, the notion of “combatingbribery of foreign public officials”, which was first inserted into our domestic law by the Act No. 4782 dated2 January 2003, was also included in the New Turkish Criminal Code (Act No. 5237) dated 26 September2004 and amended by the Act. No. 5377 dated 29 June 2005 (Turkish Criminal Code Article 252/5).

In connection with its OECD obligations, the Bank began requiring “commitments” from exportersbenefiting from the Bank’s programs in 2004, in which there were references to the Turkish Criminal Code.The measures to prevent bribery in international business transactions have been enhanced and furtherimprovements have been executed on a program-basis after the adoption of the OECD Recommendation.

Information regarding the evaluation of Turkey carried out by OECD Working Group on Bribery isavailable on the web-page of Ministry of Justice as the coordination unit.http://www.uhdigm.adalet.gov.tr/oecd/oecd.htm.

Sanctions, Anti-Money Laundering Policies and Principles

The Bank regards combating money laundering and financing of terrorism not only as a legal obligation butalso as a social responsibility and attaches a great importance to it. The Bank also regards these efforts as animportant element of its conformity with international standards. In addition, the Bank also develops itscompliance programs in accordance with national legislation. Pursuant to the Bank’s “Anti-moneyLaundering Policies and Implementation Principles” which are approved by the Board of Directors, the Bankintends to prevent laundering of criminal funds via our bank and to preclude use of our bank as a means tofinance terrorism-linked activities. The Bank believes that it is not in violation of any applicable sanctions.The Bank also manually screens against lists of U.S. economic sanctions administered by the U.S. TreasuryDepartment’s Office of Foreign Assets Control and other potentially applicable sanctions regulations todetermine the existence and extent of any commercial dealings with or for the benefit of specially designatednationals and other sanctions targets. See “Risk Factors—Risk factors relating to the Notes—U.S. personsinvesting in the Notes may have indirect contact with countries sanctioned by the Office of Foreign AssetsControl of the U.S. Department of Treasury as a result of the Bank’s investments in and business withcountries on the sanctions list” for more information on related risks.

The Bank is determined to ensure that the Bank and its employees are aware of their legal and administrativeobligations and that the Bank’s policies, procedures and methods of oversight conform with nationalregulations and international conventions. The Bank’s goal is to ensure that its operations maintain securebanking activities and the Bank’s credibility and client quality. The current policies, procedures and controlmethods apply to the General Directorate and all branches and liaison offices.

Remuneration

The following table sets forth the aggregate amount paid to members of the Board of Directors and to theBank’s senior management (seven persons) in salaries and other benefits, as well as post employmentbenefits, for the years ended 31 December 2011, 2010 and 2009.

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As at 31 December––––––––––––––––––––––––––––––––––––––––

2011 2010 2009–––––––––––– –––––––––––– ––––––––––––


Salaries and other short-term employee benefits ................................................................ 808 656 674Post employment benefits.................................................................................................... 259 206 233

Members of the Supreme Advisory and Credit Guidance Committee and the Board of Directors do notreceive a fee for attending meetings.

Conflicts

None of the members of the Bank’s Supreme Advisory and Credit Guidance Committee, Board of Directorsor Senior Management have any existing or potential conflicts of interests with respect to their duties to theBank and their private interests or other duties.

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RELATED PARTY TRANSACTIONS

For purposes of the IFRS Financial Statements, parties are considered to be related if one party has the abilityto control the other party or exercise significant influence over the other party in making financial oroperational decisions. For purposes of the IFRS Financial Statements, the shareholders of the Bank togetherwith state-controlled entities in Turkey are considered related parties.

The Bank has entered into a number of banking transactions with related parties in the normal course ofbusiness. Other related parties refer to entities that are controlled, jointly controlled or significantlyinfluenced by the Turkish government.

The following table sets forth the Bank’s outstanding balances with related parties as at 31 December 2011,2010 and 2009.

As at 31 December––––––––––––––––––––––––––––––––––––––––

2011 2010 2009–––––––––––– –––––––––––– ––––––––––––

(in thousands of TL)Due from banks ..................................................................................................................Other related parties(1) ........................................................................................................ 246,109 178,822 80,941Loans and advances to customers ......................................................................................Other related parties(2) ........................................................................................................ 693,452 374,549 366,687Trading securities ................................................................................................................Turkish Treasury(3).............................................................................................................. 342,935 308,488 150,149Investment securities—Held to maturity ............................................................................Turkish Treasury(4).............................................................................................................. 511,436 891,703 309,068Funds borrowed ..................................................................................................................Other related parties(5) ........................................................................................................ 3,556,380 985,780 909,537Other liabilities ....................................................................................................................Other related parties .......................................................................................................... 103 6,711 6,711

(1) The average interest rate for due from banks was 4.78% as at 31 December 2011, as compared to 4.30% as at 31 December 2010 and3.96% as at 31 December 2009.

(2) The average interest rate for loans and advances to customers was 5.19% as at 31 December 2011, as compared to 5.50% as at 31December 2010 and 7.39% as at 31 December 2009.

(3) The average interest rate for trading securities was 8% as at 31 December 2011, as compared to 7% as at 31 December 2010 and 10%as at 31 December 2009.

(4) The average interest rate for investment securities was 7.9% as at 31 December 2011, as compared to 7.8% as at 31 December 2010and 7.8% as at 31 December 2009.

(5) The average interest rate on funds borrowed was 1.22% as at 31 December 2011, as compared to 0.84% as at 31 December 2010 and2.00% as at 31 December 2009.

The following table sets forth income statement information with respect to the Bank’s transactions withrelated parties for the years ended 31 December 2011, 2010 and 2009.

Year ended 31 December––––––––––––––––––––––––––––––––––––––––

2011 2010 2009–––––––––––– –––––––––––– ––––––––––––

(in thousands of TL)Interest income on deposit with banksOther related parties .......................................................................................................... — — 68Interest income on investment and trading securitiesTurkish Treasury................................................................................................................ 57,493 59,300 37,173Interest income on loans and advances to customersOther related parties .......................................................................................................... 25,758 19,890 34,950Interest expense on funds borrowedOther related parties .......................................................................................................... 15,554 8,963 20,792Operating Expenses (taxes paid)Other related parties .......................................................................................................... 10,665 15,339 15,378

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The following table sets forth the remuneration of the board of directors and key management personnel forthe years ended 31 December 2011, 2010 and 2009.

Year ended 31 December––––––––––––––––––––––––––––––––––––––––

2011 2010 2009–––––––––––– –––––––––––– ––––––––––––


Salaries and other short-term employee benefits ................................................................ 808 656 674Post employment benefits.................................................................................................... 259 206 233

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TURKISH BANKING SYSTEM

The Turkish financial sector has gone through major structural changes as a result of the financialliberalization program that started in the early 1980s. The abolition of directed credit policies, liberalizationof deposit and credit interest rates and liberal exchange rate policies as well as the adoption of internationalbest standard banking regulations have accelerated the structural transformation of the Turkish bankingsector. Since the 1980s, the Turkish banking sector has experienced a significant expansion and developmentin the number of banks, employment in the sector, diversification of services and technologicalinfrastructure. The significant volatility in the Turkish currency and foreign exchange markets experiencedin 1994, 1998 and 2001, combined with the short foreign exchange positions held by many Turkish banks atthose times, affected the profitability and liquidity of certain Turkish banks. In 2001, this resulted in thecollapse of several institutions. The banking sector also experienced a sharp reduction in shareholders’ equityin 2001, with the capital for 22 private sector banks declining to USD 4,916 million at the end of 2001 fromUSD 8,056 million for 28 banks at the end of 2000, according to the Turkish Banking Association.

The Turkish money markets and foreign exchange markets have stabilized since 2001, in large part due toregulatory reform and other government actions. In order to enhance disclosure and require management tomaintain adequate capital, the BRSA required privately-owned deposit banks to undergo a three-part auditduring the end of 2001 and the first half of 2002. Each bank appointed their own independent auditor to carryout the first audit. To ensure that the first audit was properly undertaken in accordance with the agreedprinciples, a different independent auditor appointed by the BRSA carried out the second audit. The SwornBank Auditors of the BRSA conducted the third and final audit. This multi-phase auditing procedure wasapplied so as to minimize conflicts and increase reliability in the Turkish banking system.

Following the audit, all private commercial banks were either found to be in compliance with the 8%minimum capital requirement (which was the case for the Bank) imposed by the BRSA in mid 2002, weretransferred to the Savings Deposit Insurance Fund (the “SDIF”) or were asked to increase their capital level.According to official SDIF data, as at 5 September 2011, since 1994, a total of 25 private banks weretransferred to the SDIF due to, among other things, weakened financial stability and liquidity. Thetransparency of the system has improved with the establishment of an independent supervisory andregulatory framework and new disclosure requirements. Structural changes undertaken have strengthened theprivate banking sector and resulted in a level playing field among banks. Unfair competition from state bankswas diminished while the efficiency of the system increased in general as a result of consolidation. The SDIFis continuing its efforts to recover claims and sell off assets inherited from banks taken over by the SDIFfollowing the 2001 financial crisis while restructuring and privatization of certain state banks is progressing.The SDIF is selling non-related party loans of failed banks through loan auctions and has taken steps todispose of its holdings of shares in companies and other assets taken over by the SDIF. The SDIF did nottake over any banks during the recent global financial and economic crisis. The most recent takeoveroccurred on July 3, 2003 and involved Türkiye Imar Bankası TAŞ.

The Turkish banking system is currently regulated and supervised by the BRSA which is an independent andautonomous public entity with administrative and financial autonomy that has supervised banks and otherfinancial institutions since August 31, 2000. The BRSA, whose administrative body is the BankingRegulation and Supervision Board (“BRSB”), was established under the Law No. 4389 (as amended). TheBRSA has aligned Turkish banking regulations with international regulations on balance sheet transparencyand compliance with international financial reporting standards. In this context, Turkey started to establishthe infrastructural elements of the Basel II Capital Accord in 2002. A 20% ceiling for the ratio of net generalforeign currency to equity of the banks was set and has been properly enforced. Minimum capital adequacyrequirements of 8% have similarly been enforced. Banks that were unable to comply with these requirementshave been taken over by the SDIF. In addition, the 100% state guarantee on deposits, introduced during anearlier crisis in 1994, was lowered to TL 50,000. On 1 November 2005, the Banking Act (Law No. 5411)which was prepared in accordance with EU directives and international principles and standards waspublished in the Official Gazette.

In addition to the Central Bank, 48 banks were operating in Turkey as at the end of 2011, consisting of 13investment and development banks, 4 participation banks, 30 commercial banks and 1 SDIF bank. As at 31

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December 2010, in the commercial banking sector, there were 3 state banks, 10 private banks and 17 foreigncommercial banks.

From 2007 to 2010, based on asset size of the commercial banks, the proportion of state banks increasedfrom 30.4% to 31.6% compared to private banks. During the same period, the share of Turkish private banksin the sector decreased from 55.7% to 51.9% while the share of foreign banks increased from 14% to 16.5%.

Total assets of the Turkish banking system reached USD 656.5 billion as at 31 December 2010, compared toUSD 353.6 billion as at 31 December 2006, while total loan portfolios increased 121% during the 2006 to2010 period. Non-performing loans, or loans that are more than 90 days overdue (“NPLs”), which amountedto approximately USD 6.1 billion as at 31 December 2006, increased to USD 13.1 billion as at 31 December2010. The amount of provisions set aside for these loans was USD 10.9 billion in 2010. The amount of non-performing loans as at 31 December 2007, 2008 and 2009 was USD 8.9 billion, USD 9.2 billion and USD14.6 billion, respectively. Securities portfolios also comprise a significant portion of the balance sheets ofbanks in Turkey. The total amount of the securities portfolios was USD 187.3 billion as at 31 December2010. (source: BRSA)

As at 31 December 2010, the average capital adequacy ratio of the Turkish banking sector was 19.0% andthe NPL ratio (calculated as gross NPLs/total cash loans) was approximately 3.7%. As at 31 August 2011,the capital adequacy ratio was 16.6% and the NPL ratio was 2.8% (source: BRSA).

The following table sets forth key figures for the Turkish banking sector for the years 2007, 2008, 2009, 2010and 2011.

2007 2008 2009 2010 2011–––––––– –––––––– –––––––– –––––––– ––––––––

Total Assets ................................................................ 501.5 481.3 560.1 656.5 1,217.6Loans .......................................................................... 246.4 241.6 263.7 343.1 682.9Securities Portfolio .................................................... 142.1 127.5 172.8 187.6 285.0Deposits ...................................................................... 307.8 298.7 345.6 420.4 685.5Own Funds ................................................................ 65.3 56.8 74.4 87.7 144.6

* Includes participation banks.

Source: BRSA

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TURKISH REGULATORY ENVIRONMENT

Turkish banks are primarily governed by two regulatory authorities in Turkey, the BRSA and the CentralBank.

The Banks Act No. 4389 established the BRSA, which is responsible for ensuring that banks observebanking legislation, supervising the application of banking legislation and monitoring the banking system.The BRSA has administrative and financial autonomy. Historically, its head office has been in Ankara;however, as at February 13, 2011 and pursuant to Law No. 6111, the head office was relocated to Istanbulwith the migration of functions from Ankara to Istanbul to be completed within two years of such date.Pursuant to Law No. 6111, the Council of Ministers of Turkey has been authorized to extend the migrationdeadline as necessary.

The Central Bank was founded in 1930 and performs the traditional functions of a central bank, includingthe issuance of bank notes, implementation of the government’s fiscal and monetary policies, regulation ofthe money supply, management of official gold and foreign exchange reserves, supervision of the bankingsystem and advising the government on financial matters. The Central Bank is empowered to determine theinflation target together with the government, and to adopt a monetary policy in compliance with such target.

The Central Bank has responsibility for all banks operating in Turkey, including foreign banks. The CentralBank sets mandatory reserve levels and liquidity ratios. In addition, each bank must provide the CentralBank, on a current basis, information adequate to permit off-site evaluation of its financial performance,including balance sheets, profit and loss accounts, board of directors’ reports and auditor’s reports. Undercurrent practice, such reporting is required on a daily, weekly, monthly, quarterly and semi-annual basis,depending upon the nature of the information to be reported.

Official certified bank auditors, who are responsible for the on-site examination of banks, implement theprovisions of the Banking Law and other related legislation, examine on behalf of the BRSA all bankingoperations and analyze the relationship between assets, liabilities, net worth, profit and loss accounts and allother factors affecting a bank’s financial structure.

Pursuant to a regulation regarding the internal systems of banks issued by the BRSA, banks are obligated toestablish, manage and develop (for themselves and all of their consolidated subsidiaries and associates)internal audit and risk management systems commensurate with the scope and structure of their activities, incompliance with the provisions of the regulation. Pursuant to such regulation, the internal audit and riskmanagement systems are to be vested in a department of the bank that has the necessary independence toaccomplish its purpose and such department will report to the bank’s board of directors. To achieve this,according to the regulation, the internal control personnel cannot also be appointed to work in a roleconflicting with their internal control duties.

The Turkish Banking Association acts as a limited organization of supervision and coordination. All banksin Turkey are obliged to become members of this association. As the representative body of the bankingsector, the association aims to examine, protect and promote its members’ professional interests; however,despite its supervisory and disciplinary functions, it does not possess any powers to regulate banking.

Shareholding

The direct or indirect acquisition by a person of shares that represent 10% or more of the share capital of anybank or the direct or indirect acquisition or disposition of such shares by a person if the total number ofshares held by such person increases above or falls below 10%, 20%, 33% or 50% of the share capital of abank, requires the permission of the BRSA in order to preserve full voting and other shareholders’ rightsassociated with such shares. In addition, irrespective of the thresholds above, an assignment and transfer ofprivileged shares with the right to nominate a member to the board of directors or audit committee, or theissuance of new shares with such privileges, is also subject to the authorization of the BRSA. In the absenceof such authorization, a holder of such thresholds of shares cannot be registered in the share register, whicheffectively deprives such shareholder of the ability to participate in shareholder meetings or to exercise

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voting or other shareholders’ rights with respect to the shares (but not of the right to collect dividendsdeclared on such shares).

The board of directors of a bank is responsible for ensuring that shareholders attending general assemblieshave obtained the applicable authorizations from the BRSA. If the BRSA determines that a shareholder hasexercised voting or other shareholders’ rights (other than the right to collect dividends) without dueauthorization as described in the preceding paragraph, then it is authorized to direct the board of directors ofthe applicable bank to cancel any applicable general assembly resolutions. If the shares are obtained on thestock exchange, then the BRSA may also impose administrative fines on shareholders who exercise theirrights or acquire or transfer shares as described in the preceding paragraph without BRSA authorization.Unless and until a shareholder obtains the necessary share transfer approvals from the BRSA, the SDIF hasthe authority to exercise such voting and other shareholders’ rights (other than the right to collect dividendsand priority rights) attributable to such shareholder.

Lending Limits

Turkish law sets out certain limits on the asset profile of banks and other financial institutions designed toprotect those institutions from excessive exposure to any one counterparty (or group of relatedcounterparties), which limits are summarized below. These limits do not apply to the Bank:

• Credits extended in the amounts of 10% or more of a bank’s shareholders’ equity are classified aslarge credits and the total of such credits cannot be more than eight times the bank’s shareholders’equity. In this context, “credits” include cash credits and non-cash credits such as letters of guarantee,counter-guarantees, sureties, endorsements and acceptances extended by a bank, bonds and similarcapital market instruments purchased by it, loans (whether deposits or other), receivables arising fromthe future sales of assets, overdue cash credits, accrued but not collected interest, amounts of non-cashcredits converted into cash and futures and options and other similar contracts, partnership interestsand shareholding interests.

• The Banking Law restricts the total financial exposure (including extension of credits, issuance ofguarantees, etc.) that a bank may have to any one customer or a risk group directly or indirectly to25% of its equity capital. In calculating such limit, a credit extended to a partnership is deemed to beextended to the partners in proportion to their liabilities. A risk group is defined as an individual, hisor her spouse and children and partnerships in which any one of such persons is a director or generalmanager as well as partnerships that are directly or indirectly controlled by any one of such persons,either individually or jointly with third parties, or in which any one of such persons participate withunlimited liability. Furthermore, a bank, its shareholders holding 10% or more of the bank’s votingrights or the right to nominate board members, its board members, general manager and partnershipsdirectly or indirectly, individually or jointly, controlled by any of these persons or a partnership inwhich these persons participate with unlimited liability or in which these persons act as directors orgeneral managers constitute a risk group, for which the lending limits are reduced to 20% of a bank’sequity capital.

• Loans made available to a bank’s controlling shareholders or registered shareholders holding morethan 1% of the share capital of the bank and their risk groups may not exceed 50% of the bank’scapital equity.

The BRSA determines the permissible ratio of non-cash loans, futures and options, other similartransactions, acceptances, guarantees and sureties, and bills of exchange, bonds and other similar capitalmarkets instruments issued or guaranteed by, and credit and other financial instruments and other contractsentered into with, governments, central banks and banks of the countries accredited with the BRSA for thepurpose of calculation of loan limits.

Pursuant to Article 55 of the Banking Law, the following transactions are exempt from the above-mentionedlending limits:

• transactions against cash, cash-like assets and accounts and precious metals;

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• transactions carried out with the Undersecretariat of Treasury, the Central Bank, the PrivatizationAdministration and the Mass Housing Administration, as well as transactions carried out against bills,bonds and similar securities issued or guaranteed by these institutions;

• transactions carried out in the Central Bank markets or other legally organized money markets;

• in case of new credit allocations, valuations prompted by the changes in currency rates in creditsdenominated or indexed to foreign currencies, and interests, profit shares and other such issuesaccrued on overdue credits;

• bonus shares (scrip issues) received as a result of capital increases, and any increase in the value ofshares not requiring any fund outflow;

• interbank operations within the framework of the principles set out by the BRSA;

• shares acquired within the framework of underwriting services for public offering activities, providedthat such shares are disposed of in the time and manner determined by the BRSA;

• transactions considered as “deductibles” in the shareholders’ equity account; and

• other transactions to be determined by the board of the BRSA.

Loan Loss Reserves

Procedures relating to loan loss reserves for non-performing loans are set out in regulations issued by theBRSA. The Bank is not subject to those procedures. Pursuant to the Regulation on Provisions andClassification of Loans and Receivables, banks (including the Bank) are required to classify their loans andreceivables into one of the following groups:

I. Standard Loans and Other Receivables: This group involves loans and other receivables:

(1) that have been disbursed to natural persons and legal entities with financial creditworthiness;

(2) the principal and interest payments of which have been structured according to the solvencyand cash flow of the debtor;

(3) the reimbursement of which has been made within specified periods, for which noreimbursement problems are expected in the future and that can be fully collected; and

(4) for which no weakening of the creditworthiness of the debtor has been found.

The terms of a bank’s loans and receivables monitored in this group may be modified if such loansand receivables continue to have the conditions envisaged for this group. However, in the event thatsuch modification is related to the extension of the initial payment plan under the loan or receivable,a general loan provision, not being less than five times the sum of 1% of the cash loan portfolio plus0.2% of the non-cash loan portfolio (such as letters of guarantee, acceptance credits, letters of creditundertakings and endorsements) is required to be set aside and such modification is required to bedisclosed under the financial reports to be disclosed to the public. This ratio is required to be at least2.5 times the Consumer Loans Provisions (as defined below) for amended consumer loan agreements(other than auto and housing loans). As an exception to this rule, short-term, low-risk loans with aproven record of interest payments are not required to set aside additional reserves if their terms arerenewed, provided that this does not lead to additional cost to the bank and the principal is repaidwithin a year.

II. Closely Monitored Loans and Other Receivables: This group involves loans and other receivables:

(1) that have been disbursed to natural persons and legal entities with financial creditworthinessand for the principal and interest payments of which there is no problem at present, but whichneed to be monitored closely due to reasons such as negative changes in the solvency or cash

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flow of the debtor, probable materialization of the latter or significant financial risk carried bythe person utilizing the loan;

(2) whose principal and interest payments according to the conditions of the loan agreement arenot likely to be repaid according to the terms of the loan agreement and where the persistenceof such problems might result in partial or full non-reimbursement risk;

(3) that are very likely to be repaid but where the collection of principal and interest has not beenmade for justifiable reasons and is delayed for more than 30 days; however, which cannot beconsidered as loans or other receivables with limited recovery as grouped in group III below;or

(4) although the standing of the debtor has not weakened, there is a high likelihood of weakeningdue to the debtor’s irregular and unmanageable cash flow.

If a bank has made several loans to a customer and any of these loans is included in this group, thenall of the bank’s loans to such customer will be classified in this group even though some of the bank’sloans to such customer would otherwise have been included in group I above. The terms of a bank’sloans and receivables monitored in this group may be modified if such loans and receivables continueto have the conditions envisaged for this group. However, in the event that such modification is relatedto the extension of the initial payment plan under the loan or receivable, a general loan provision, notbeing less than 2.5 times the sum of 2% of the cash loan portfolio plus 0.4% of the non-cash loanportfolio for closely-monitored loans will be set aside and such modifications are required to bedisclosed under the financial reports to be disclosed to the public. This ratio is required to be at least1.25 times the Consumer Loans Provisions for amended consumer loan agreements (other than autoand housing loans). As an exception to this rule, short-term, low-risk loans with a proven record ofinterest payments are not required to set aside additional reserves if their terms are renewed, providedthat this does not lead to additional cost to the bank and the principal is repaid within a year.

III. Loans and Other Receivables with Limited Collection Ability: This group involves loans and otherreceivables:

(1) with limited collectability due to the resources of, or the securities furnished by, the debtorbeing found insufficient to meet the debt on the due date, and where if the problems observedare not eliminated, they are likely to give rise to loss;

(2) the credibility of whose debtor has weakened and where the loan is deemed to have weakened;

(3) collection of whose principal and interest or both has been delayed for more than 90 days butnot more than 180 days from the due date; or

(4) in connection with which the bank is of the opinion that collection of the principal or interestof the loan or both will be delayed for more than 90 days from the due date owing to reasonssuch as the debtor’s difficulties in financing working capital or in creating additional liquidity.

IV. Loans and Other Receivables with Remote Collection Ability: This group involves loans and otherreceivables:

(1) that seem unlikely to be repaid or liquidated under existing conditions;

(2) in connection with which there is a strong likelihood that the bank will not be able to collectthe full loan amount that has become due or payable under the terms stated in the loanagreement;

(3) whose debtor’s creditworthiness is deemed to have significantly weakened but which are notconsidered as an actual loss due to such factors as a merger, the possibility of finding newfinancing or a capital increase; or

(4) there is a delay of more than 180 days but not more than one year from the due date in thecollection of the principal or interest or both.

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V. Loans and Other Receivables Considered as Losses: This group involves loans and other receivables:

(1) that are deemed to be uncollectible;

(2) collection of whose principal or interest or both has been delayed by one year or more from thedue date; or

(3) for which, although carrying the characteristics stated in groups III and IV, the bank is of theopinion that they have become weakened and that the debtor has lost his creditworthiness dueto the strong possibility that it will not be possible to fully collect the amounts that have becomedue and payable within a period of one year.

Pursuant to Article 53 of the Banking Law, banks must calculate the losses that have arisen, or arelikely to arise, in connection with loans and other receivables. Such calculations must be regularlyreviewed. A bank must also reserve adequate provisions against depreciation or impairment of otherassets, qualify and classify assets, receive guarantees and security and measure the reliability and thevalue of such guarantees and security. In addition, banks must monitor loans under review, monitorthe repayment of overdue loans and establish and operate systems to perform these functions. Allprovisions set aside for loans and other receivables in accordance with this article are consideredexpenditures deductible from the corporate tax base in the year they are set aside.

General provisions

Turkish law also requires Turkish banks to provide a general reserve calculated at 1% of the cash loanportfolio plus 0.2% of the non-cash loan portfolio (letters of guarantee, acceptance credits, letters of creditundertakings and endorsements) for standard loans; and a general reserve calculated at 2% of the cash loanportfolio plus 0.4 % of the non-cash loan portfolio for closely-monitored loans. In addition, a reservecalculated at 25% of the applicable rate of the rates above will be required to be provided for each check thatremains uncollected for a period of five years after issuance.

Banks with consumer loan ratios greater than 20% of their total loans and banks with non-performingconsumer loan (classified as frozen receivables as defined below (excluding auto and housing loans)) ratiosgreater than 8% of their total consumer loans (excluding auto and housing loans) (pursuant to theunconsolidated financial data prepared as at the general reserve calculation period) are required to set asidea 4% general provision for outstanding (but not yet due) consumer loans (excluding auto and housing loans)under group I above, and an 8% general provision for outstanding (but not yet due) consumer loans(excluding auto and housing loans) under group II above (“Consumer Loans Provisions”).

If the sum of the letters of guarantee, acceptance credits, letters of credit undertakings, endorsements,purchase guarantees in security issuances, factoring guarantees or other guarantees and sureties and pre-financing loans without letters of guarantee of a bank is higher than ten times its equity calculated pursuantto the Regulation on Equity of Banks, a 0.3% general provision ratio is required to be applied by such bankfor all of its standard non-cash loans. Notwithstanding the above ratio and by taking into consideration thestandard capital adequacy ratio, the BRSA may apply the same ratio or a higher ratio as the general reserverequirement ratio.

Specific provisions

Turkish banks are also required to set aside general provisions for the amounts monitored under the accountsof “Receivables from Derivative Financial Instruments” on the basis of the sums to be computed bymultiplying them by the rates of conversion into credit indicated in Article 12 of the “Regulation on LoanTransactions of Banks” by applying the general provision rate applicable for cash loans. In addition to thegeneral provisions, special provisions must be set aside for the loans and receivables in groups III, IV and Vdescribed above in the amounts of 20%, 50% and 100%, respectively.

All loans and receivables in groups III, IV and V above, irrespective of whether any interest or other similarobligations of the debtor are applicable on the principal or whether the loans or receivables have beenrefinanced, are defined as “frozen receivables.” If several loans have been extended to a loan customer by the

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same bank and if any of these loans is considered as a frozen receivable, then all outstanding risks of suchloan customer are classified in the same group as the frozen receivable even if such loans would nototherwise fall under the same group as such frozen receivable. If a frozen receivable is repaid in full, thenthe other loans of the loan customer may be re-classified into the applicable group as if there were no relatedfrozen receivable.

Banks must also monitor the following types of security based upon their classification:

Category I Collateral: Cash, deposits, profit sharing funds and gold deposit accounts that are secured bypledge or assignment agreements; repurchase agreement proceeds secured by promissory notes, debenturebonds and similar securities issued directly or guaranteed by the Central Bank, the Treasury, the MassHousing Administration or the Privatization Administration and B-type investment profit sharing funds;member firm receivables arising out of credit cards and gold reserved within the applicable bank; securitiesissued directly or guaranteed by the central governments or central banks of countries that are members ofthe OECD (define) and securities issued directly or guaranteed by the European Central Bank; transactionsmade with the Treasury, the Central Bank, the Mass Housing Administration or the PrivatizationAdministration or transactions that are guaranteed by securities issued directly or guaranteed by suchinstitutions; guarantees issued by banks operating in OECD member countries; sureties and letters ofguarantee issued by banks operating in Turkey in compliance with their maximum lending limits; andpromissory notes and debenture bonds issued by banks in Turkey.

Category II Collateral: Precious metals other than gold; shares quoted on a stock exchange; A-typeinvestment profit sharing funds; asset-backed securities and private sector bonds except ones issued by theborrower; credit derivatives providing protection against credit risk; the assignment or pledge of accruedentitlements of persons from public agencies; liquid securities, negotiable instruments representingcommodities, other types of commodities and movables pledged at market value; mortgages on propertyregistered with the land registry and mortgages on real property built on allocated real estate, provided thattheir appraised value is sufficient; export documents appurtenant to bill of lading or carrier’s receipt andnegotiable instruments obtained from real or legal persons based upon actual commercial relationships.

Category III Collateral: Commercial enterprise pledges, export documents, vehicle pledges, mortgages onaircraft or ships, suretyships of creditworthy natural persons or legal entities and other client promissorynotes of real or legal persons.

Category IV Collateral: Any other security not otherwise included in categories I, II or III.

While calculating the special provision requirements for non-performing loans, the value of collateralreceived from the borrower will be deducted from the frozen receivables in groups III, IV and V above in thefollowing proportions in order to determine the amount that will be subject to special provisioning:

Discount Category Rate

––––––––Category I collateral .................................................................................................................................................................... 100%Category II collateral.................................................................................................................................................................... 75%Category III collateral .................................................................................................................................................................. 50%Category IV collateral .................................................................................................................................................................. 25%

In case the value of the collateral exceeds the amount of the non-performing loan, the above-mentioned ratesof consideration are applied only to the portion of the collateral that is equal to the amount of the non-performing loan.

According to Article 11 of the Regulation on Provisions and Classification of Loans and Receivables, in theevent of a borrower’s failure to repay loans or any other receivables due to a temporary lack of liquidity thatthe borrower is facing, a bank is allowed to refinance the borrower with additional funding in order tostrengthen the borrower’s liquidity position or to structure a new repayment plan. Despite such refinancingor new repayment plan, such loans and other receivables are required to be monitored in their current loangroups (whether III, IV or V) for at least the following six-month period and to be provided against in linewith the relevant loan group provisioning level. After this six-month period, if total collections reach at least15% of the total receivables for restructured loans, then the remaining receivables may be reclassified as

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“Refinanced/Restructured Loans and Receivables.” The bank may refinance the borrower for a second timeif the borrower fails to repay the refinanced loan; provided that at least 20% of the principal and otherreceivables are collected on a yearly basis.

The Regulation on Provisions and Classification of Loans and Receivables was amended on 9 April 2011.According to Provisional Article 5 of the regulation, which will be effective until 31 December 2012, debtclassified as group II receivables granted to real persons or legal entities residing in Libya or in connectionwith their activities relating to Libya can be restructured twice. Furthermore, such restructured debt may beclassified as group I receivables, provided that at least 10% of the total debt has been repaid. Any such debtclassified under group I that is reclassified as group II debt or that is restructured or is continued to bemonitored under group II debt as the agreed conditions for reclassification were not adhered to and arerestructured once again may be reclassified as group I debt, provided that at least 15% of the total debt hasbeen repaid. If such debt becomes subject to a redemption plan for a second time as a result of new loanshaving been utilized, then such debt shall be classified as group III debt until 5% of the total debt has beenrepaid. As long as such percentage of payments foreseen in the redemption plan are made within the paymentperiods envisaged for this group, it is in the bank’s discretion to set aside special provisions for such loansand receivables.

In addition, pursuant to Provisional Article 5 described above, if real persons or legal entities residing inLibya or having business activity relating to Libya (other than those described in the preceding paragraph)incur other debt that is classified under group III, IV or V, then the debt relating to Libya will be reclassifiedin the same group as such debt. However, setting aside special provisions in the ratio foreseen by the relatedgroup for these loans is in the discretion of the bank. So long as the classification methods as set out in theregulation are complied with, if a borrower fails to repay such debt due to a temporary lack of liquidity, thena bank is allowed to refinance the borrower with additional funding in order to strengthen its liquidityposition or to structure a new repayment plan up to three times.

Any debt restructured pursuant to the paragraph above may be reclassified as “Loans Renewed and Havinga New Redemption Plan” if:

• at least 5% of the total debt in the first restructuring has been repaid and the restructured loans havebeen monitored under their respective group(s) for a period of at least three months;

• at least 10% of the total debt in the second restructuring has been repaid and the restructured loanshave been monitored under their respective group(s) for a period of six months;

• at least 15% of the total debt in the third restructuring has been repaid and the restructured loans havebeen monitored under their respective group(s) for a period of one year; and

• the payments foreseen in the payment plan are not delayed.

Pursuant to Provisional Article 5, details of such restructuring and the amended conditions, shall be disclosedin their annual or interim financial reports to be disclosed to the public.

The Regulation on Provisions and Classification of Loans and Receivables was amended on December 30,2011. According to Provisional Article 6 of the regulation, which will be effective until December 31, 2012,debt classified as group II receivables granted by the banks to be used in maritime sector can be restructuredtwice. Furthermore, such restructured debt may be classified as group I receivables, provided that at least10% of the total debt has been repaid. Any such debt classified under group I that is reclassified as group IIdebt or that is restructured or is continued to be monitored under group II debt as the agreed conditions forreclassification were not adhered to and are restructured once again may be reclassified as group I debt,provided that at least 15% of the total debt has been repaid. If such debt becomes subject to a redemptionplan for a second time as a result of new loans having been utilized, then such debt shall be classified asgroup III debt until 5% of the total debt has been repaid. As long as such percentage of payments foreseenin the redemption plan are made within the payment periods envisaged for this group, it is in the bank’sdiscretion to set aside special provisions for such loans and receivables.

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In addition, pursuant to such Provisional Article 6 described above, if there are loans or other receivablesclassified under group III, IV or V excluding loans granted to be used for maritime sector as well as otherreceivables, such debt shall be reclassified in the same group as the debt relating to maritime sector asdescribed in the preceding paragraph. However, setting aside special provisions in the ratio foreseen by therelated group for these loans is in the discretion of banks. So long as the classification methods as set out inthe regulation are complied with, if a borrower fails to repay such debt due to a temporary lack of liquidity,then a bank is allowed to refinance the borrower with additional funding in order to strengthen its liquidityposition or to structure a new repayment plan up to three times.

Any debt restructured pursuant to the paragraph above may be reclassified as “Loans Renewed and Havinga New Redemption Plan” if:

• at least 5% of the total debt in the first restructuring has been repaid and the restructured loans havebeen monitored under their respective group(s) for a period of at least three months,

• at least 10% of the total debt in the second restructuring has been repaid and the restructured loanshave been monitored under their respective group(s) for a period of six months,

• at least 15% of the total debt in the third restructuring has been repaid and the restructured loans havebeen monitored under their respective group(s) for a period of one year, and

• the payments foreseen in the payment plan are not delayed.

Pursuant to Provisional Article 6, any such modifications made on the loans mentioned above shall bedisclosed under the financial reports to be disclosed to the public.

Capital Adequacy

In November 2006, the BRSA issued new regulations on measurement and assessment of capital adequacyof banks. Article 45 of the Banking Law defines “Capital Adequacy” as having adequate equity against lossesthat could arise from the risks encountered. Pursuant to the same article, banks must calculate, achieve,perpetuate and report their capital adequacy ratio, which, within the framework of the BRSA’s regulations,cannot be less than 8%.

The BRSA is authorized to increase the minimum capital adequacy ratio, to set different ratios for each bankand to revise the risk weights of assets that are based upon participation accounts, but must consider eachbank’s internal systems as well as its asset and financial structures.

As an example, pursuant to an amendment made to the Regulation on Measurement and Assessment ofCapital Adequacy of Banks dated June 18, 2011, Turkish banks are required to apply to consumer loans(excluding auto and housing loans) a risk-weighting model based upon the outstanding term of such loansand that takes into account the risks that may arise due to long-term consumer loans. With respect to capitaladequacy, the recent amendments require that the risk weight applied to consumer loans (excluding auto andhousing loans) with terms of one to two years be 150% and to those with terms of more than two years be200%.

Under the Regulation on Equities of Banks published in the Official Gazette No. 26333 dated 1 November2006, subordinated loans to a bank are grouped as “primary subordinated loans” and “secondarysubordinated loans” and are listed as one of the items that constitute “Tier II” capital. The portion of primarysubordinated loans equal to an amount from 15% up to 50% of “Tier I” capital is included in the calculationof “Tier I” capital.

According to a BRSA quantitative impact study published in early 2011, based on Turkish banking data asat March 2010, the implementation of Basel II would have had a negative impact on capital adequacy ratiosacross the Turkish banking sector.

Under the Regulation on Equities of Banks, credits obtained from certain institutions or debt instrumentsissued to certain institutions and registered with the CMB are considered as secondary subordinated loansand must meet the following qualifications:

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(a) They have an initial term of a minimum of five years and they do not have options for principalpayment within the initial five years or repayment earlier than their stated maturities;

(b) They do not contain any multiple payment options earlier than their terms and dates on which optionsmay be exercised in case of any repayment options are expressed and clearly stipulated;

(c) Lenders or investors agree that payment is effected immediately before shares and debts similar toprimary capital after all the other debts in case of liquidation of the bank;

(d) They are drawn all at once/in a lump sum in respect of credits and payment thereof has not beenreceived in cash totally in respect of borrowing instruments;

(e) It is declared in writing that such loan is not linked to any derivative transactions or contracts of sucha nature that would lead to violation of the condition under paragraph (f) below and that such is notdirectly or indirectly made the subject of any guarantees in any manner and means and that they maynot be assigned to the affiliates and subsidiaries of the bank; and

(f) Payment earlier than terms is subject to approval by the BRSA.

If the interest rates applied to secondary subordinated loans are not explicitly indicated in the creditagreement or the text of the debt instrument or if the interest rate is excessively high compared to that ofsimilar loans or debt instruments, the BRSA may not authorize the inclusion of the loan or debt instrumentin the calculation of “Tier II” capital.

In the event that the aggregate “Tier II” capital exceeds 100% of the core capital of a bank such excess is nottaken into account in calculating the capital of such bank. In the event the aggregate secondary subordinatedloans and the portion of primary subordinated loans which is not taken into account in Tier 1 capital exceed50% of the core capital and the portion of general reserves exceed 125 per 10,000 of the total of the sum asa basis for credit risk, market risk and operational risk, such excess is not taken into consideration incalculating the Tier-II capital.

Liquidity Reserve Requirement

Article 46 of the Banking Law requires banks to calculate, attain, maintain and report the minimum liquiditylevel in accordance with principles and procedures set out by the BRSA. Within this framework, acomprehensive liquidity arrangement has been put into force by the BRSA, following the consent of theCentral Bank. These arrangements do not apply to the Bank.

The reserve requirements regarding foreign currency liabilities vary by category, as set forth below:

RequiredReserve

Category of Foreign Currency Liabilities Ratio––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––– –––––––––Demand deposits, notice deposits and private current accounts, precious metal deposit accounts, deposits/participationaccounts up to 1-month, 3-month, 6-month and up to 1-year maturities .................................................................................. 11%

Deposits/participation accounts and precious metal deposit accounts with 1-year and longer maturity and cumulativedeposits/participation accounts .................................................................................................................................................. 9%

Other liabilities up to 1-year maturity (including 1-year) .......................................................................................................... 11%Other liabilities up to 3-year maturity (including 3-year) .......................................................................................................... 9%Other liabilities longer than 3-year maturity................................................................................................................................ 6%

Ratios forcorresponding

maturitiesSpecial fund pools above

The Bank is not required to deposit reserves with the Central Bank.

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The reserve requirements regarding Turkish Lira liabilities vary by category and as at 31 December 2011were:

RequiredReserve

Category of Turkish Lira Liabilities Ratio––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––– –––––––––Demand deposits, notice deposits and private current accounts.................................................................................................. 11%Deposits/participation accounts up to 1-month maturity (including 1-month) .......................................................................... 11%Deposits/participation accounts up to 3-month maturity (including 3-month) .......................................................................... 11%Deposits/participation accounts up to 6-month maturity (including 6-month) .......................................................................... 8%Deposits/participation accounts up to 1-year maturity ................................................................................................................ 6%Deposits/participation accounts with 1-year and longer maturity and cumulative deposits/participation accounts .................. 5%Liabilities other than deposits/participation funds up to 1-year maturity (including 1-year)...................................................... 11%Liabilities other than deposits/participation funds up to 3-year maturity (including 3-year)...................................................... 8%Liabilities other than deposits/participation funds with longer maturity .................................................................................... 5%

Ratios forcorresponding

maturitiesSpecial fund pools above

The reserve requirements will also apply to gold deposit accounts. Furthermore, the banks are permitted tomaintain (i) up to 40% of their Turkish lira liabilities in USD and/or Euros and up to 20% standard gold and(ii) the total amount of the reserve requirements applicable to precious metal deposit accounts and 0% of thereserve requirements applicable to foreign currency liabilities (other than precious metal deposit accounts)in standard gold.

Starting in September 2010, reserve accounts kept in TL became non-interest-bearing (reserve accounts inforeign currencies have not been interest-bearing since 2008).

The regulations state that the liquidity adequacy ratio of a bank is the ratio of liquid reserves to liabilities ofthe bank. A bank must maintain a weekly arithmetic average of 100% liquidity adequacy before the firstmaturity period (0-7 days before the maturity date of liabilities on a weekly average as defined by theregulation) and second maturity period (0-31 days before the maturity date of liabilities on a monthlyaverage) for its aggregate liabilities and 80% liquidity adequacy for its foreign currency liabilities.

Foreign Exchange Requirements

The ratio of a bank’s foreign exchange net position to its capital base should not exceed 20%, whichcalculation is required to be made on a weekly basis. The net foreign exchange position is the differencebetween the Turkish Lira equivalent of a bank’s foreign exchange assets and its foreign exchange liabilities.For the purpose of computing the net foreign exchange position, foreign exchange assets include all activeforeign exchange accounts held by a bank (including its foreign branches), its foreign exchange-indexedassets and its subscribed forward foreign exchange purchases; for purposes of computing the net foreignexchange position, foreign exchange liabilities include all passive foreign exchange accounts held by a bank(including its foreign branches), its subscribed foreign exchange-indexed liabilities and its subscribedforward foreign exchange sales. If the ratio of a bank’s net foreign exchange position to its capital baseexceeds 20%, then the bank is required to take steps to move back into compliance within two weeksfollowing the bank’s calculation period. Banks are permitted to exceed the legal net foreign exchangeposition to capital base ratio up to six times per calendar year.

Audit of Banks

According to Article 24 of the Banking Law, banks’ boards of directors are required to establish auditcommittees for the execution of audit and monitoring functions. Audit committees shall consist of aminimum of two members and be appointed from among the members of the board of directors who do nothave executive duties. The duties and responsibilities of the audit committee include the supervision of theefficiency and adequacy of the bank’s internal control, risk management and internal audit systems,functioning of these systems and accounting and reporting systems within the framework of the BankingLaw and other relevant legislation, and integrity of the information produced; conducting the necessarypreliminary evaluations for the selection of independent audit firms by the board of directors; regularly

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monitoring the activities of independent audit firms selected by the board of directors; and, in the case ofholding companies covered by the Banking Law, ensuring that the internal audit functions of the institutionsthat are subject to consolidation operate in a coordinated manner, on behalf of the board of directors.

The BRSA, as the principal regulatory authority in the Turkish banking sector, has the right to monitorcompliance by banks with the requirements relating to audit committees. As part of exercising this right, theBRSA reviews audit reports prepared for banks by their independent auditing firms. Banks are required toselect an independent audit firm in accordance with the regulation of the BRSA related to the authorizationand activities of independent firms to perform auditing of banks. Independent auditors are held liable fordamages and losses to relevant parties referred to under the same legislation. Professional liability insuranceis required for: (a) independent auditors and (b) evaluators, rating agencies and certain other support services(if requested by the service-acquiring bank or required by the BRSA). Furthermore, banks are required toconsolidate their financial statements on a quarterly basis in accordance with certain consolidation principlesestablished by the BRSA. The year-end financial statements are required to be audited whereas interimfinancial statements are subject to only a limited review by independent audit firms.

The reports prepared by independent audit firms are also filed with the CMB if the bank’s shares are quotedon the ISE. The CMB has the right to inspect the accounts and transaction records of any publicly tradedcompany. In addition, quarterly reports that are subject to limited review must also be filed with the CMB.

All banks (public and private) also undergo an annual audit by certified bank auditors who have the authorityto audit banks on behalf of the BRSA. Audits by certified bank auditors encompass all aspects of a bank’soperations, its financial statements and other matters affecting the bank’s financial position, including itsdomestic banking activities, foreign exchange transactions and tax liabilities. Additionally, such audits seekto ensure compliance with applicable laws and the constitutional documents of the bank. The results of suchaudits are reported to the Ministry of Finance, which has broad remedial powers. The Central Bank has theright to monitor compliance by banks with the Central Bank’s regulations through off-site examinations.

The SDIF

Article 111 of the Banking Law relates to the SDIF. The SDIF was established to develop trust and stabilityin the banking sector by strengthening the financial structures of Turkish banks, restructuring Turkish banksas needed and insuring the savings deposits of Turkish banks. The SDIF is a public legal entity set up toinsure savings deposits held with banks and, as such, the Bank does not fall within its purview. The SDIF isresponsible for and authorized to take measures for restructuring, transfers to third parties and strengtheningthe financial structures of banks, the shares of which and/or the management and control of which have beentransferred to the SDIF in accordance with Article 71 of the Banking Law, as well as other duties imposedon it.

(a) Insurance of Deposits

Pursuant to Article 63 of the Banking Law, savings deposits held with banks are insured by the SDIF.The scope and amount of savings deposits subject to the insurance, the tariff of the insurancepremium, the time and method of collection of this premium, and other relevant matters aredetermined by the SDIF upon consultation with the Treasury, the BRSA and the Central Bank.

(b) Borrowings of the SDIF

The SDIF: (1) may incur indebtedness with authorization from the Undersecretariat of the Treasuryor (2) the Undersecretariat of the Treasury may issue government securities with the proceeds to beprovided to the SDIF as a loan, as necessary. Principles and procedures regarding the borrowing ofgovernment debt securities, including their interest rates and terms and conditions of repayment to theTreasury, are to be determined together by the Treasury and the SDIF.

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(c) Power to require Advances from Banks

If the assets of the SDIF do not meet the demands on it and the resources of the SDIF are insufficient,then banks may be required to make advances of up to the total insurance premiums paid by them inthe previous year to be set-off against their future premium obligations.

(d) Contribution of the Central Bank

If the SDIF’s resources prove insufficient due to extraordinary circumstances, then the Central Bankwill, on request, provide the SDIF with an advance. The terms, amounts, repayment conditions,interest rates and other conditions of the advance will be determined by the Central Bank uponconsultation with the SDIF.

(e) Savings Deposits that are not subject to Insurance

Deposits held in a bank by controlling shareholders, the chairman and members of the board ofdirectors or board of managers, general manager and assistant general managers, auditors and by theparents, spouses and children of the above, and deposits, participation funds and other accounts withinthe scope of criminally-related assets set forth in Article 282 of the Turkish Criminal Code and otherdeposits, participation funds and accounts as determined by the BRSA are not covered by the SDIF’sinsurance.

(f) Premiums as an Expense Item

Premiums paid by a bank into the SDIF are to be treated as an expense in the calculation of that bank’scorporate tax.

(g) Liquidation

In the event of the bankruptcy of a bank, the SDIF is a privileged creditor and may liquidate the bankunder the provisions of the Execution and Bankruptcy Act, exercising the duties and powers of thebankruptcy office and creditors’ meeting and the bankruptcy administration.

(h) Claims

In the event of the bankruptcy of a bank, holders of savings deposits will have a first-degree privilegedclaim in respect of the part of their deposit that is not covered by the SDIF.

Since July 5, 2004, up to TL 50,000 of the amounts of a depositor’s deposit accounts benefit from the SDIFinsurance guarantee.

Cancellation of Banking License

If the results of an audit show that a bank’s financial structure has seriously weakened, then the BRSA mayrequire the bank’s board of directors to take measures to strengthen its financial position. Pursuant to theBanking Law, in the event the BRSA in its sole discretion determines that:

• the assets of a bank are insufficient or are likely to become insufficient to cover its obligations as theybecome due;

• the bank is not complying with liquidity requirements;

• the bank’s profitability is such as to make it unable to conduct its business in a secure manner;

• the regulatory equity capital of such bank is not sufficient or is to likely to become insufficient;

• the assets of such bank have been impaired in a manner weakening its financial structure;

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• the by-laws and internal regulations of such bank are in breach of the Banking Law, relevantregulations or the decisions of the BRSA;

• such bank fails to establish internal audit, supervision and risk management systems or to effectivelyconduct such systems or any factor impedes the supervision of such systems; or

• imprudent acts of such bank’s managers materially increase or weaken the bank’s financial structure,

then the BRSA may require such bank:

• to increase its equity capital;

• not to distribute dividends for a period to be determined by the BRSA and to transfer its distributabledividend to the reserve fund;

• to increase its loan provisions;

• to dispose of its assets in order to strengthen its liquidity;

• to limit its new investments;

• to cease its long-term investments;

• to comply with the relevant banking legislation;

• to cease its risky transactions; and/or

• to take all actions to decrease any foreign exchange and interest rate risks.

In the event the aforementioned actions are not taken (in whole or in part) by the applicable bank or itsfinancial structure cannot be strengthened despite its having taken such actions, or its financial structure hasbecome so weak that it could not be strengthened, then the BRSA may require such bank:

• to increase its liquidity and/or capital adequacy;

• to dispose of its fixed assets and long-term assets;

• to decrease its operational costs;

• to postpone its payments, excluding the regular payments to be made to its members;

• not to make available any cash or non-cash loans to certain third persons or legal entities;

• to convene an extraordinary general assembly in order to change the board members or assign newmember(s) to the board of directors, in the event any board member is responsible for the failure toapply the aforementioned actions; and/or

• to implement short-, medium- or long-term plans and projections that are approved by the BRSA todecrease the risks incurred by the bank.

In the event the aforementioned actions are not (in whole or in part) taken by the applicable bank or are notsufficient to cause such bank to continue its business in a secure manner, then the BRSA may require suchbank:

• to limit or cease its business for a temporary period;

• to apply various restrictions, including restrictions with respect to resource collection and utilization;

• to remove from office (in whole or in part) its board members, general manager and deputy generalmanagers and department and branch managers;

• to make available long-term loans that will be secured by the shares or other assets of the controllingshareholders;

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• to limit or cease its non-performing operations and to dispose of its non-performing assets;

• to merge with one or more other banks;

• to provide new shareholders in order to increase its equity capital; and/or

• to cover its losses with its equity capital.

In the event: (a) the aforementioned actions are not (in whole or in part) taken by the applicable bank withina period of time set forth by the BRSA or in any case within twelve months, (b) the financial structure ofsuch bank cannot be strengthened despite its having taken such actions or the financial structure of such bankhas become so weak that it could not be strengthened even if the actions were taken, (c) the continuation ofthe activities of such bank would jeopardize the rights of the depositors and the participation fund ownersand the security and stability of the financial system, (d) such bank cannot cover its liabilities as they becomedue, (e) the total amount of the liabilities of such bank exceeds the total amount of its assets or (f) thecontrolling shareholders of such bank are found to have made use of that bank’s resources for their owninterests, directly or indirectly or fraudulently, in a manner that jeopardized the secure functioning of thebank or caused such bank to sustain a loss as a result of such misuse, then the BRSA, with the affirmativevote of at least five of its board members, may revoke the license of such bank to engage in bankingoperations and/or to accept deposits and transfer the management, supervision and control of the privilegesof shareholders (excluding dividends) of such bank to the SDIF.

In the event that the license of a bank to engage in banking operations and/or to accept deposits is revoked,then that bank’s management and audit will be taken over by the SDIF. Any and all execution and bankruptcyproceedings (including preliminary injunction) against such bank would be discontinued as from the date onwhich the BRSA’s decision to revoke such bank’s license is published in the Official Gazette. From the dateof revocation of such bank’s license, the creditors of such bank may not assign their rights or take any actionthat could lead to assignment of their rights. The SDIF must take measures for the protection of the rights ofdepositors and other creditors of such bank. The SDIF is required to pay the insured deposits of such bankeither by itself or through another bank it may designate. In practice, the SDIF may designate another bankthat is under its control. The SDIF is required to institute bankruptcy proceedings in the name of depositorsagainst a bank whose banking license is revoked.

Annual Reporting

Pursuant to the Banking Law, Turkish banks are required to follow the BRSA’s principles and procedures(which are established in consultation with the Turkish Accounting Standards Board and internationalstandards) when preparing their annual reports. In addition, they must ensure uniformity in their accountingsystems, correctly record all their transactions and prepare timely and accurate financial reports in a formatthat is clear, reliable and comparable as well as suitable for auditing, analysis and interpretation.

A bank cannot settle its balance sheets without ensuring reconciliation with the legal and auxiliary books andrecords of its branches and domestic and foreign correspondents.

The BRSA is authorized to take necessary measures where it is determined that a bank’s financial statementshave been misrepresented.

When the BRSA requests a bank’s financial reports, the chairman of the board, audit committee, generalmanager, deputy general manager responsible for financial reporting and the relevant unit manager (orequivalent authorities) must sign the reports indicating their full names and titles and declaring that thefinancial report complies with relevant legislation and accounting records. In addition, foreign banks musthave the members of the board of managers of their Turkish branches sign the annual reports.

Independent auditors must approve all annual reports that banks present to their general assemblies.

Banks are required to submit their financial reports to related authorities and publish them in accordance withthe BRSA’s principles and procedures.

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Further, banks are required to submit and publish activity reports that comply with the BRSA’s establishedguidelines. These reports include the following information: management and organization structures,human resources, activities, financial situations, assessment of management and expectations and a summaryof the directors’ report and independent auditor’s report.

The Regulation on the Preparation and Publication of Annual Reports regulates the procedures and principlesregarding the annual reports of banks to be published at the end of each fiscal year. According to theregulation, a bank’s financial performance and the risks that it faces need to be assessed in the annual report.The annual report is subject to the approval of the board of directors and must be submitted to shareholdersat least 15 days before the annual general assembly of the bank. Each bank must submit a copy of its annualreport to the BRSA by the end of April and keep a copy of it in its headquarters and each branch and publishit on its website by the end of May.

Financial Services Fee (BRSA Contribution Fee)

Pursuant to Heading XI of Article 8 of the Law on Fees (Law No. 492) amended by the Law No. 5951, banksare required to pay to the relevant tax office to which their head office reports an annual financial servicesfee for each of their branches. The amount of the fee is determined in accordance with the population of thedistrict in which the relevant branch is located.

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CONDITIONS OF THE NOTES

The following is the text of the Conditions of the Notes which (subject to modification) will be endorsed onthe Certificates issued in respect of the Notes:

The USD 500,000,000 5.875% Notes due 2019 (the “Notes”, which expression shall in these Conditions,unless the context otherwise requires, include any further notes issued pursuant to Condition 15 and forminga single series with the Notes) of Türkiye İhracat Kredi Bankası A.Ş. (the Issuer) are issued subject to andwith the benefit of an Agency Agreement dated 20 April 2012 (such agreement as amended and/orsupplemented and/or restated from time to time, the “Agency Agreement”) made between the Issuer,Citigroup Global Markets Deutschland AG as registrar (the “Registrar”) and Citibank, N.A., LondonBranch as fiscal agent and principal paying agent (the “Fiscal Agent”) and the other initial paying agentsnamed in the Agency Agreement (together with the Fiscal Agent, the “Paying Agents”) and the other agentsnamed in it (together with the Fiscal Agent, the Registrar and the other Paying Agents, the Agents). Theholders of the Notes (the “Noteholders”) are entitled to the benefit of a Deed of Covenant (the “Deed ofCovenant”) dated 20 April 2012 and made by the Issuer. The original of the Deed of Covenant is held bythe Fiscal Agent on behalf of the Noteholders at its specified office.

The statements in these Conditions include summaries of, and are subject to, the detailed provisions of anddefinitions in the Agency Agreement. Copies of the Agency Agreement are available for inspection duringnormal business hours by the Noteholders at the specified office of each of the Paying Agents. TheNoteholders are entitled to the benefit of, are bound by, and are deemed to have notice of, all the provisionsof the Agency Agreement and the Deed of Covenant applicable to them. References in these Conditions tothe Fiscal Agent, the Registrar, the Paying Agents and the Agents shall include any successor appointedunder the Agency Agreement.

The owners shown in the records of Euroclear Bank SA/N.V. (“Euroclear”), Clearstream Banking, sociétéanonyme (“Clearstream, Luxembourg”) and the Depository Trust Company (“DTC”) of book-entryinterests in Notes are entitled to the benefit of the Deed of Covenant and the Agency Agreement, and arebound by, and are deemed to have notice of, all the provisions of the Agency Agreement applicable to them.

1. FORM, DENOMINATION AND TITLE

1.1 Form and Denomination

The Notes are issued in registered form in amounts of USD 200,000 (referred to as the principalamount of a Note) and in integral multiples of USD 1,000 thereafter. A note certificate (each aCertificate) will be issued to each Noteholder in respect of its registered holding of Notes. EachCertificate will be numbered serially with an identifying number which will be recorded on therelevant Certificate and in the register of Noteholders which the Issuer will procure to be kept by theRegistrar and at the registered office of the Issuer. The Notes are issued pursuant to the TurkishCommercial Code (Law No. 6762), the Capital Markets Law (Law No. 2499), Article 15/6 of Decree32 on the Protection of the Value of Turkish Currency and Articles 6 and 25 of the Communiqué SerialII, No. 22 of the Capital Markets Board on Registration and Sale of Debt Instruments.

The Notes are not issuable in bearer form.

1.2 Title

Title to the Notes passes only by registration in the register of Noteholders. The holder of any Notewill (except as otherwise required by law) be treated as its absolute owner for all purposes (whetheror not it is overdue and regardless of any notice of ownership, trust or any interest or any writing on,or the theft or loss of, the Certificate issued in respect of it) and no person will be liable for so treatingthe holder. In these Conditions, “Noteholder” and (in relation to a Note) “holder” means the personin whose name a Note is registered in the register of Noteholders.

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For a description of the procedures for transferring title to book-entry interests in the Notes, see “The GlobalCertificates.”

2. TRANSFERS OF NOTES AND ISSUE OF CERTIFICATES

2.1 Transfers

A Note may be transferred by depositing the Certificate issued in respect of that Note, with the formof transfer on the back duly completed and signed, at the specified office of the Registrar or any ofthe Agents.

For a description of certain restrictions on transfers of interests in the Notes, see “The GlobalCertificates.”

2.2 Delivery of new Certificates

Each new Certificate to be issued upon a transfer of the Notes will, within five business days of receiptby the Registrar or the relevant Agent of the duly completed form of transfer endorsed on the relevantCertificate, be mailed by uninsured mail at the risk of the holder entitled to the Note to the addressspecified in the form of transfer. For the purposes of this Condition, “business day” shall mean a dayon which banks are open for business in the city in which the specified office of the Agent with whoma Certificate is deposited in connection with a transfer is located.

Except in the limited circumstances described in “The Global Certificates—Registration of Title”,owners of interests in the Notes will not be entitled to receive physical delivery of Certificates. Issuesof Certificates upon transfer of Notes are subject to compliance by the transferor and transferee withthe certification procedures described above and in the Agency Agreement and, in the case ofRestricted Notes, compliance with the Securities Act Legend.

Where some but not all of the Notes in respect of which a Certificate is issued are to be transferred anew Certificate in respect of the Notes not so transferred will, within five business days of receipt bythe Registrar or the relevant Agent of the original Certificate, be mailed by uninsured mail at the riskof the holder of the Notes not so transferred to the address of such holder appearing on the register ofNoteholders or as specified in the form of transfer.

2.3 Formalities free of charge

Registration of transfer of Notes will be effected without charge by or on behalf of the Issuer or anyAgent but upon payment (or the giving of such indemnity as the Issuer or any Agent may reasonablyrequire) in respect of any tax or other governmental charges which may be imposed in relation to suchtransfer.

2.4 Closed Periods

No Noteholder may require the transfer of a Note to be registered during the period of 15 days endingon the due date for any payment of principal, premium or interest on that Note.

2.5 Regulations

All transfers of Notes and entries on the register of Noteholders will be made subject to the detailedregulations concerning transfer of Notes scheduled to the Agency Agreement. The regulations may bechanged by the Issuer with the prior written approval of the Registrar. A copy of the currentregulations will be mailed (free of charge) by the Registrar to any Noteholder who requests one.

3. STATUS

The Notes are direct, unconditional and (subject to the provisions of Condition 4) unsecuredobligations of the Issuer and (subject as provided above) rank and will rank pari passu, without any

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preference among themselves, with all other outstanding unsecured and unsubordinated obligations ofthe Issuer, present and future, but, in the event of insolvency, only to the extent permitted by applicablelaws relating to creditors’ rights.

4. NEGATIVE PLEDGE

4.1 Negative Pledge

So long as any Note remains outstanding (as defined in the Agency Agreement) the Issuer will notcreate or have outstanding any mortgage, charge, lien, pledge or other security interest (each a“Security Interest”) upon, or with respect to, any of its present or future business, undertaking, assetsor revenues (including any uncalled capital) to secure any Relevant Indebtedness (as defined below),unless the Issuer, in the case of the creation of a Security Interest, before or at the same time and, inany other case, promptly, takes any and all action necessary to ensure that:

(a) all amounts payable by it under the Notes are secured by the Security Interest equally andrateably with the Relevant Indebtedness; or

(b) such other Security Interest or other arrangement (whether or not it includes the giving of aSecurity Interest) is provided as is approved by an Extraordinary Resolution (which is definedin the Agency Agreement as a resolution duly passed by a majority of not less than 75% of thevotes cast) of the Noteholders.

Nothing in this Condition 4 shall prevent the Issuer from creating or permitting to subsist any SecurityInterest upon, or with respect to, any present or future assets or revenues or any part thereof which iscreated pursuant to (i) a bond, note or similar instrument whereby the payment obligations are securedon a segregated pool of assets (whether held by the Issuer or any third party guarantor) (any suchinstrument, a “Covered Bond”), or (ii) any securitization of receivables, asset-backed financing orsimilar financing structure (created in accordance with normal market practice) and whereby allpayment obligations secured by such Security Interest or having the benefit of such Security Interestare to be discharged solely from such assets or receivables (“Non-Recourse Securities”) (or in thecase of Direct Recourse Securities, by direct unsecured recourse to the Issuer), provided that theaggregate then-existing balance sheet value of receivables subject to any Security Interest created inrespect of an issuance of (A) Covered Bonds and (B) any other secured Relevant Indebtedness(including, the nominal amount of any outstanding Direct Recourse Securities but excluding Non-Recourse Securities), does not, at any time, exceed 15% of consolidated total assets of the Issuer andits Subsidiaries (if any) (as shown in the most recent audited consolidated financial statements of theIssuer prepared in accordance with IFRS).

4.2 Interpretation

For the purposes of these Conditions:

“Direct Recourse Securities” means securities issued in connection with any securitization ofreceivables or other payment rights, asset-backed financing or similar financing structure (created inaccordance with normal market practice) and whereby all payment obligations secured by suchSecurity Interest or having the benefit of such Security Interest are to be discharged principally fromsuch assets or receivables, or by direct unsecured recourse to the Issuer; and

“Relevant Indebtedness” means (i) any present or future indebtedness (whether being principal,premium, interest or other amounts) for or in respect of any notes, bonds, debentures, debenture stock,loan stock or other securities which are for the time being quoted, listed or ordinarily dealt in on anystock exchange, over-the-counter or other organized securities market or any loan disbursed to theIssuer as a borrower under a loan participation note or similar transaction and any such securities orloan having an original maturity at issue or disbursement in excess of 365 days (ii) any guarantee orindemnity of any such indebtedness.

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5. COVENANTS

5.1 Maintenance of Authorizations

So long as any Notes remains outstanding (as defined in the Agency Agreement), the Issuer shall takeall necessary action to maintain, obtain and promptly renew, and do or cause to be done all thingsreasonably necessary to ensure the continuance of, all consents, permissions, licenses, approvals andauthorizations, and make or cause to be made all registrations, recordings and filings, which may atany time be required to be obtained or made in the Republic of Turkey (including, for the avoidanceof doubt, with the Capital Markets Board (in Turkish: Sermaye Piyasasi Kurulu) (the “CMB”) and theBanking Regulatory and Supervisory Authority) (in Turkish: Bankacilik Duzenleme ve DenetlemeKurumu) (the “BRSA”)) for (i) the execution, delivery or performance of the Agency Agreement, theDeed of Covenant and the Notes or for the validity or enforceability thereof, or (ii) the conduct by itof the Permitted Business.

5.2 Transactions with Affiliates

The Issuer shall not, and shall not permit any of its Subsidiaries to, make any payment to, or sell, lease,transfer or otherwise dispose of any of its properties, revenues or assets to, or purchase any properties,revenues or assets from, or enter into or make or amend any transaction, contract, agreement,understanding, loan, advance, indemnity or guarantee (whether related or not) with or for the benefitof, any Affiliate (each, an “Affiliate Transaction”) on terms that are no less favourable to the Issueror the relevant Subsidiary than those that would have been obtained in a comparable transaction bythe Issuer or such Subsidiary with an unrelated Person (as defined in the Agency Agreement), SAVETHAT the Issuer or any of its Subsidiaries may enter into one or more Permitted Transactions.

5.3 Financial Reporting

So long as any Note remains outstanding (as defined in the Agency Agreement), the Issuer shalldeliver to the Fiscal Agent:

(a) not later than six months after the end of the Issuer’s financial year, copies of the Issuer’saudited consolidated financial statements for such financial year, prepared in accordance withIFRS consistently applied, together with the corresponding financial statements for thepreceding period, and all such annual financial statements of the Issuer shall be accompaniedby the report of the auditors thereon;

(b) not later than 120 days after the end of the first six months of each of the Issuer’s financialyears, copies of its unaudited consolidated financial statements for such six-month period,prepared in accordance with IFRS consistently applied, together with the correspondingfinancial statements for the preceding period; and

(c) in the case of every other item referred to below, not later than 20 days after their initialdistribution to any of the persons referred to below, three copies in English of every balancesheet, profit and loss account or income statement and, to the extent permitted by applicablelaw, every report or other notice, statement or circular issued, or which legally should be issued,to the members or holders of securities (generally) of the Issuer or any holding companythereof generally in their capacity as such.

For the purposes of this Condition 5:

“Affiliate” in respect of any specified Person, means any other Person directly or indirectlycontrolling or controlled by or under direct or indirect common control with such specified Person,and, in the case of a natural Person, any immediate family member of such Person. For purposes ofthis definition, “control”, as used with respect to any Person, shall mean the possession, directly orindirectly, of the power to direct or cause the direction of the management or policies of such Person,whether through the ownership of voting securities, by agreement or otherwise. For purposes of this

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definition, the terms “controlling”, “controlled by” and “under common control with” shall havecorrelative meanings.

“Permitted Business” means any business which is the same as or related, ancillary orcomplementary to any of the businesses of the Issuer on the Issue Date (as defined below).

“Permitted Transactions” means Affiliate Transactions which involve the Issuer and/or any of itsSubsidiaries (i) entering into a loan, (ii) providing a guarantee or (iii) providing an indemnity, or anycombination of (i), (ii) and (iii) or any transaction with a similar economic effect to any of (i), (ii) or(iii), and which have a value in aggregate outstanding at any time which does not exceed 20% of theIssuer’s equity.

6. INTEREST

6.1 Interest Rate and Interest Payment Dates

The Notes will bear interest from and including 20 April 2012 (the “Issue Date”) at the rate of 5.875%per annum, payable semi-annually in arrear on 24 April and 24 October (each an “Interest PaymentDate”) in each year. The first payment (for the period from and including 20 April 2012 to butexcluding 24 October 2012 and amounting to USD 30.03 per USD 1,000 principal amount of Note)shall be made on 24 October 2012.

6.2 Interest Accrual

Each Note will cease to bear interest from and including its due date for redemption unless, upon duepresentation, payment of the principal in respect of the Note is improperly withheld or refused orunless default is otherwise made in respect of payment. In such event, interest will continue to accrueuntil whichever is the earlier of:

(a) the date on which all amounts due in respect of such Note have been paid; and

(b) five days after the date on which the full amount of the moneys payable in respect of such Noteshas been received by the Fiscal Agent or the Registrar, as the case may be, and notice to thateffect has been given to the Noteholders in accordance with Condition 13.

6.3 Calculation of Broken Interest

When interest is required to be calculated in respect of a period of less than a full six-month interestperiod, it shall be calculated on the basis of a 360-day year consisting of 12 months of 30 days eachand, in the case of an incomplete month, the number of days elapsed on the basis of a month of 30days.

7. PAYMENTS

7.1 Payments in respect of Notes

Payment of principal and interest will be made by transfer to the registered account of the Noteholderor by U.S. Dollar cheque drawn on a bank that processes payments in U.S. Dollar mailed to theregistered address of the Noteholder if it does not have a registered account. Payments of principaland payments of interest due otherwise than on an Interest Payment Date will only be made againstsurrender of the relevant Certificate at the specified office of any of the Agents. Interest on Notes dueon an Interest Payment Date will be paid on such Interest Payment Date to the holder shown on theregister of Noteholders at the close of business on the date (the record date) being the fifteenth daybefore the due date for the payment of interest.

For the purposes of this Condition, a Noteholder’s registered account means the U.S. Dollar accountmaintained by or on behalf of it with a bank that processes payments in U.S. Dollar, details of whichappear on the register of Noteholders at the close of business, in the case of principal, on the second

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business day (as defined below) before the due date for payment and, in the case of interest, on therelevant record date, and a Noteholder’s registered address means its address appearing on the registerof Noteholders at that time.

7.2 Payments subject to Applicable Laws

Payments in respect of principal and interest on Notes are subject in all cases to any fiscal or otherlaws and regulations applicable in the place of payment, but without prejudice to the provisions ofCondition 9.

7.3 No commissions

No commissions or expenses shall be charged to the Noteholders in respect of any payments made inaccordance with this Condition.

7.4 Payment on Business Days

Where payment is to be made by transfer to a registered account, payment instructions (for value thedue date or, if that is not a Business Day (as defined below), for value the first following day whichis a Business Day) will be initiated and, where payment is to be made by cheque, the cheque will bemailed, on the Business Day preceding the due date for payment or, in the case of a payment ofprincipal or a payment of interest due otherwise than on an Interest Payment Date, if later, on theBusiness Day on which the relevant Certificate is surrendered at the specified office of an Agent.

Noteholders will not be entitled to any interest or other payment for any delay after the due date inreceiving the amount due if the due date is not a Business Day, if the Noteholder is late in surrenderingits Certificate (if required to do so) or if a cheque mailed in accordance with this Condition arrivesafter the due date for payment.

In this Condition “Business Day” means a day (other than a Saturday or Sunday) on whichcommercial banks are open for business in New York, London and Istanbul and, in the case ofpresentation of a Certificate, in the place in which the Certificate is presented.

7.5 Partial Payments

If the amount of principal or interest which is due on the Notes is not paid in full, the Registrar willannotate the register of Noteholders with a record of the amount of principal, premium (if any) orinterest in fact paid.

7.6 Agents

The names of the initial Agents and their initial specified offices are set out at the end of theseConditions. The Issuer reserves the right at any time to vary or terminate the appointment of any Agentand to appoint additional or other Agents provided that:

(a) there will at all times be a Fiscal Agent;

(b) there will at all times be an Agent (which may be the Fiscal Agent) having a specified office ina European city which, for so long as the Notes are admitted to official listing on the LondonStock Exchange, shall be London or such other place as the UK Listing Authority may approve;

(c) the Issuer undertakes that it will ensure that it maintains a Paying Agent that is not located ina Member State of the European Union that will oblige it to withhold or deduct tax pursuant toEuropean Council Directive 2003/48/EC or any law implementing or complying with, orintroduced in order to conform to, such Directive;

(d) there will at all times be a Paying Agent in a jurisdiction within Europe, other than thejurisdiction in which the Issuer is incorporated; and

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(e) there will at all times be a Registrar.

Notice of any termination or appointment and of any changes in specified offices given to theNoteholders promptly by the Issuer in accordance with Condition 13.

8. REDEMPTION AND PURCHASE

8.1 Redemption at Maturity

Unless previously redeemed or purchased and cancelled as provided below, the Issuer will redeem theNotes at their principal amount on 24 April 2019.

8.2 Redemption for Taxation Reasons

If:

(a) as a result of any change in, or amendment to, the laws or regulations of a Relevant Jurisdiction(as defined in Condition 9), or any change in the application or official interpretation of thelaws or regulations of a Relevant Jurisdiction, which change or amendment becomes effectiveafter 20 April 2012, on the next Interest Payment Date:

(i) the Issuer would be required to pay additional amounts as provided or referred to inCondition 9; and

(ii) the Issuer would be required to make any withholding or deduction for, or on accountof, any Taxes imposed or levied by or on behalf of the Relevant Jurisdiction, beyond theprevailing applicable rates on the Issue Date; and

(b) the requirement cannot be avoided by the Issuer taking reasonable measures available to it,

the Issuer may at its option, having given not less than 30 nor more than 60 days’ notice to theNoteholders in accordance with Condition 13 (which notice shall be irrevocable), redeem all theNotes, but not some only, at any time at their principal amount together with interest accrued to butexcluding the date of redemption. Prior to the publication of any notice of redemption pursuant to thisparagraph, the Issuer shall deliver to the Fiscal Agent a certificate signed by two Directors of theIssuer stating that the requirement referred to in (a) above will apply on the next Interest Payment Dateand setting forth a statement of facts showing that the conditions precedent to the right of the Issuerso to redeem have occurred and an opinion of independent legal advisers of recognized standing tothe effect that the Issuer has or will become obliged to pay such additional amounts as a result of thechange or amendment.

8.3 Redemption upon a Change of Control

(a) Following the occurrence of a Change of Control (as defined below), each Noteholder will havea right (a “Change of Control Put Right”), at such Noteholder’s option, to require the Issuerto redeem in whole but not in part such Noteholder’s Notes on the Change of Control Put Date(as defined below) at the sum of: (A) 100% of their principal amount plus (B) interest accruedthereon to such date. To exercise such Change of Control Put Right, the Holder of the relevantNote must complete, sign and deposit at the specified office of any Paying Agent a dulycompleted and signed put notice, in the form for the time being current, obtainable duringnormal business hours from the specified office of any Paying Agent (a “Change of ControlPut Exercise Notice”), together with the Certificate evidencing the Note to be redeemed, bynot later than 30 days following a Change of Control or 30 days following the date upon whichnotice thereof is given to the Noteholder (in accordance with Condition 13 by the Issuer,whichever is later. The “Change of Control Put Date” shall be the fourteenth calendar dayafter the expiry of the 30-day period following a Change of Control or following the date uponwhich notice thereof is given to the Noteholders (in accordance with Condition 13) by theIssuer, as the case may be.

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(b) A Change of Control Put Exercise Notice, once delivered, shall be irrevocable and the Issuershall redeem the Notes which form the subject of the Change of Control Put Exercise Noticedelivered as aforesaid on the Change of Control Put Date except where, prior to the due dateof redemption, an Event of Default has occurred and is continuing in which event suchNoteholder, at its option, may elect by notice to the Issuer to withdraw the Change of ControlPut Exercise Notice given hereunder and instead to give notice to the Issuer that all but notsome only, of such Noteholder’s Notes shall accordingly become forthwith due and repayablepursuant to Condition 11.

(c) No Paying Agent shall be required to take any steps to ascertain whether a Change of Controlor any event which could lead to the occurrence of a Change of Control has occurred.

(d) Not later than two days after becoming aware of a Change of Control, the Issuer shall procurethat notice shall be given to the Noteholders in accordance with Condition 13 stating:

(i) the date of such Change of Control and, briefly, the events causing such Change ofControl;

(ii) the date by which the Change of Control Put Exercise Notice must be given;

(iii) the Change of Control Put Date;

(iv) the names and addresses of all Paying Agents;

(v) the procedures that Noteholders must follow and the requirements that Noteholders mustsatisfy in order to exercise the Change of Control Put Right;

(vi) that a Change of Control Put Exercise Notice, once validly given, may not be withdrawn;and

(vii) the aggregate principal amount of the Notes outstanding as at the latest practicable dateprior to the publication of such notice regarding the Change of Control.

(e) For the purpose of these Conditions, a “Change of Control” shall be deemed to have occurredif:

EITHER

(i) (A) the Republic of Turkey, acting through the Undersecretariat of the Treasury (inTurkish: Turkiye Cumhuriyeti’ni temsilen Hazine Mustesarligi) or through anyother entity owned or controlled by the Republic of Turkey, as the case may be(the “Controlling Entity”) ceases to control or hold, directly or indirectly, 100%of the ordinary shares of the Issuer (such event, a “Disposal”); and

(B) within a period beginning on the date that is the earlier of (x) the date of the firstpublic announcement of the Disposal, and (y) the completion of the Disposal, andending on the date that falls six months after the completion of the Disposal (the“Disposal Period”), a Ratings Event occurs,

OR

(ii) the Controlling Entity ceases to control or hold, directly or indirectly, at least 50% plusone share of the ordinary shares of the Issuer.

For the purposes of this Condition 8.3:

“Rating Agency” means Moody’s Investors Service Limited (“Moody’s”) or Standard &Poor’s Rating Services, a division of The McGraw-Hill Companies, Inc. (“S&P”) or FitchRatings Ltd. (“Fitch”), or any of their respective successors, or any other rating agency ofinternational standing; and

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a “Ratings Event” means any of the following:

(i) for so long as the Republic of Turkey, acting through the Undersecretariat of theTreasury maintains one or more ratings from the Rating Agencies (the “TurkishSovereign Rating”):

(A) if any of the Rating Agencies withdraws a rating assigned to the Notes and suchrating is not subsequently re-instated within the Disposal Period; or

(B) if any of the Rating Agencies downgrades a rating assigned to the Notes to a levelbelow the then-assigned Turkish Sovereign Rating; or

(ii) if the Notes carry no credit rating, and no Rating Agency assigns within the DisposalPeriod a credit rating to the Notes that is equivalent to the Turkish Sovereign Rating orhigher.

8.4 No Other Redemption

The Issuer shall not be entitled to redeem the Notes otherwise than as provided in Condition 8.1 to8.3 above.

8.5 Notices Final

Upon the expiry of any notice as is referred to in Conditions 8.2 or 8.3 above the Issuer shall be boundto redeem the Notes to which the notice refers in accordance with the terms of such paragraph.

8.6 Purchases

The Issuer or any of its Subsidiaries (as defined below) may at any time purchase Notes in any mannerand at any price. Such Notes may be held, re-issued, resold or, at the option of the Issuer, surrenderedto any Paying Agent or the Registrar for cancellation.

9. TAXATION

9.1 Payment without Withholding

All payments in respect of the Notes by or on behalf of the Issuer shall be made without withholdingor deduction for, or on account of, any present or future taxes, duties, assessments or governmentalcharges of whatever nature (“Taxes”) imposed or levied by or on behalf of a Relevant Jurisdiction,unless the withholding or deduction of the Taxes is required by law. In that event, the Issuer will paysuch additional amounts as may be necessary in order that the net amounts received by theNoteholders after the withholding or deduction shall equal the respective amounts which would havebeen receivable in respect of the Notes in the absence of the withholding or deduction; except that noadditional amounts shall be payable in relation to any payment in respect of any Note:

(a) presented for payment by or on behalf of a holder who is liable to the Taxes in respect of theNote by reason of his having some connection with any Relevant Jurisdiction other than themere holding of the Note; or

(b) presented for payment in the Republic of Turkey; or

(c) where such withholding or deduction is imposed on a payment to an individual and is requiredto be made pursuant to European Council Directive 2003/48/EC or any law implementing orcomplying with, or introduced in order to conform to, such Directive; or

(d) presented for payment by or on behalf of a holder who would have been able to avoid suchwithholding or deduction by presenting the relevant Note to another Paying Agent in a MemberState of the European Union; or

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(e) presented for payment more than 30 days after the Relevant Date (as defined below) except tothe extent that a holder would have been entitled to additional amounts on presenting the samefor payment on the last day of the period of 30 days assuming that day to have been a BusinessDay (as defined in Condition 7).

9.2 Interpretation

In these Conditions:

(a) “Relevant Date” means with respect to any payment the date on which such payment firstbecomes due but, if the full amount of the money payable has not been received by the FiscalAgent on or before the due date, it means the date on which, the full amount of the moneyhaving been so received, notice to that effect has been duly given to the Noteholders by theIssuer in accordance with Condition 13; and

(b) “Relevant Jurisdiction” means the Republic of Turkey or any political subdivision or anyauthority thereof or therein having power to tax or any other jurisdiction or any politicalsubdivision or any authority thereof or therein having power to tax to which the Issuer becomessubject in respect of payments made by it of principal and interest on the Notes.

9.3 Additional Amounts

Any reference in these Conditions to any amounts in respect of the Notes shall be deemed also to referto any additional amounts which may be payable under this Condition 9.

10. PRESCRIPTION

Claims in respect of principal and interest will become prescribed unless made within 10 years (in thecase of principal) and five years (in the case of interest) from the Relevant Date, as defined inCondition 9.

11. EVENTS OF DEFAULT

11.1 Events of Default

The holder of any Note may give notice to the Issuer that the Note is, and it shall accordingly forthwithbecome, immediately due and repayable at its principal amount, together with interest accrued to thedate of repayment, if any of the following events (“Events of Default”) shall have occurred and becontinuing:

(a) if default is made in the payment of any principal or interest due in respect of the Notes or anyof them and the default continues for a period of 14 days in the case of principal or seven daysin the case of interest; or

(b) if the Issuer fails to perform or observe any of its other obligations under these Conditions and(except in any case where the failure is incapable of remedy, when no continuation or notice asis hereinafter mentioned will be required) the failure continues for the period of 14 daysfollowing the service by any Noteholder on the Issuer of notice requiring the same to beremedied; or

(c) if (i) any Indebtedness for Borrowed Money (as defined below) of the Issuer or any of itsSubsidiaries becomes due and repayable prematurely by reason of an event of default (howeverdescribed); (ii) the Issuer or any of its Subsidiaries fails to make any payment in respect of anyIndebtedness for Borrowed Money on the due date for payment or within any applicable graceperiod; (iii) any security given by the Issuer or any of its Subsidiaries for any Indebtedness forBorrowed Money is enforced; or (iv) default is made by the Issuer or any of its Subsidiaries inmaking any payment due (within any applicable grace period) under any guarantee and/or

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indemnity given by it in relation to any Indebtedness for Borrowed Money of any other person;or

(d) if any order is made by any competent court or the Government of Turkey, as the case may be,or resolution is passed for the winding up or dissolution of the Issuer or any of its MaterialSubsidiaries; or

(e) if the Issuer or any of its Material Subsidiaries ceases or threatens to cease to carry on the wholeor a substantial part of its business, save for the purposes of reorganization on terms approvedby an Extraordinary Resolution of Noteholders, or the Issuer or any of its Material Subsidiariessuspends or threatens to suspend payment of, or is unable to, or admits inability to, pay, itsdebts (or any class of its debts) as they fall due or is deemed unable to pay its debts pursuantto or for the purposes of any applicable law, or is adjudicated, declared or found to be (orbecomes) bankrupt or insolvent; or

(f) if the Issuer or any of its Material Subsidiaries (or their respective directors or shareholders)initiates or consents to judicial proceedings relating to itself under any applicable liquidation,insolvency, composition, insolvent reorganization or other similar laws (including the obtainingof a moratorium) or makes a conveyance or assignment for the benefit of, or enters into anycomposition or other arrangement with, its creditors generally (or any class of its creditors) orany meeting is convened to consider a proposal for an arrangement or composition with itscreditors generally (or any class of its creditors).

11.2 Interpretation

For the purposes of these Conditions:

“Indebtedness for Borrowed Money” means any indebtedness (whether being principal, premium,interest or other amounts) for or in respect of:

(a) any notes, bonds, debentures, debenture stock, loan stock or other securities; or

(b) any borrowed money; or

(c) any liability under or in respect of any acceptance or acceptance credit,

the aggregate principal amount of which exceeds USD 50,000,000 (or its equivalent in any othercurrency or currencies).

“Material Subsidiary” means at any time a Subsidiary of the Issuer:

(a) whose total assets (consolidated in the case of a Subsidiary which itself has Subsidiaries)represent or, in the case of a Subsidiary acquired after the end of the financial period to whichthe then latest audited consolidated IFRS financial statements of the Issuer and its Subsidiariesrelate, are equal to) not less than 10% of consolidated total assets of the Issuer and itsSubsidiaries taken as a whole, all as calculated respectively by reference to the then latestaudited IFRS financial statements (consolidated or, as the case may be, unconsolidated) of suchSubsidiary and the then latest audited consolidated accounts of the Issuer and its Subsidiaries,PROVIDED THAT in the case of a Subsidiary of the Issuer acquired after the end of thefinancial period to which the then latest audited consolidated IFRS financial statements of theIssuer and its Subsidiaries relate, the reference to the then latest audited consolidated IFRSfinancial statements of the Issuer and its Subsidiaries for the purposes of the calculation aboveshall, until consolidated accounts for the financial period in which the acquisition is made havebeen prepared and audited as aforesaid, be deemed to be a reference to such first-mentionedaccounts as if such Subsidiary had been shown in such accounts by reference to its then latestrelevant audited accounts, adjusted as deemed appropriate by the Issuer;

(b) to which is transferred the whole or substantially the whole of the undertaking and assets of aSubsidiary of the Issuer which immediately prior to such transfer is a Material Subsidiary,

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provided that the transferor Subsidiary shall upon such transfer forthwith cease to be a MaterialSubsidiary and the transferee Subsidiary shall immediately become a Material Subsidiarypursuant to this subparagraph (b) but shall cease to be a Material Subsidiary on the date ofpublication of its next consolidated audited IFRS financial statements unless it would then bea Material Subsidiary under (a) above; or

(c) to which is transferred an undertaking or assets which, taken together with the undertaking orassets of the transferee Subsidiary, represented (or, in the case of the transferee Subsidiarybeing acquired after the end of the financial period to which the then latest audited consolidatedIFRS financial statements of the Issuer and its Subsidiaries relate, represent) not less than 10%of the consolidated total assets of the Issuer and its Subsidiaries taken as a whole (calculatedas set out in subparagraph (a) above), provided that the transferor Subsidiary (if a MaterialSubsidiary) shall upon such transfer forthwith cease to be a Material Subsidiary unlessimmediately following such transfer, its assets represent not less than 10% of the consolidatedtotal assets of the Issuer and its Subsidiaries taken as a whole (calculated as set out insubparagraph (a) above), and the transferee Subsidiary shall cease to be a Material Subsidiarypursuant to this subparagraph (c) on the date on the publication of its next audited IFRSfinancial statements, save that such transferor Subsidiary or such transferee Subsidiary may bea Material Subsidiary on or at any time after the date on which such consolidated accounts havebeen prepared and audited as aforesaid by virtue of the provisions of subparagraph (a) aboveor, prior to or after such date, by virtue of any other applicable provision of this definition.

A report by the auditors of the Issuer that in their opinion a Subsidiary is or is not or was or was notat any particular time a Material Subsidiary shall, in the absence of manifest error, be conclusive andbinding on all parties.

Subsidiary means, in relation to the Issuer, any company (i) in which the Issuer holds a majority ofthe voting rights or (ii) of which the Issuer is a member and has the right to appoint or remove amajority of the board of directors or (iii) of which the Issuer is a member and controls a majority ofthe voting rights, and includes any company which is a Subsidiary of a Subsidiary of the Issuer.

12. REPLACEMENT OF CERTIFICATES

If any Certificate is lost, stolen, mutilated, defaced or destroyed it may be replaced at the specifiedoffice of the Registrar upon payment by the claimant of the expenses incurred in connection with thereplacement and on such terms as to (i) evidence of such theft, loss, mutilation, defacement ordestruction, and (ii) indemnity as the Issuer may reasonably require. Mutilated or defaced Certificatesmust be surrendered before replacements will be issued.

13. NOTICES

13.1 Notices to the Noteholders

All notices to the Noteholders will be valid if mailed to them at their respective addresses in theregister of Noteholders maintained by the Registrar. The Issuer shall also ensure that notices are dulygiven or published by the Fiscal Agent in a manner which complies with the rules and regulations ofany stock exchange or other relevant authority on which the Notes are for the time being listed. Anynotice shall be deemed to have been given on the day after being so mailed or on the date ofpublication or, if so published more than once or on different dates, on the date of the first publication.

14. MEETINGS OF NOTEHOLDERS AND MODIFICATION

14.1 Meetings of Noteholders

The Agency Agreement contains provisions for convening meetings of the Noteholders to considerany matter affecting their interests, including the modification by Extraordinary Resolution of any ofthese Conditions or any of the provisions of the Agency Agreement. The quorum at any meeting for

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passing an Extraordinary Resolution will be one or more persons present holding or representing morethan 50% in principal amount of the Notes for the time being outstanding, or at any adjourned meetingone or more persons present whatever the principal amount of the Notes held or represented by himor them, except that at any meeting the business of which includes the modification of certain of theseConditions the necessary quorum for passing an Extraordinary Resolution will be one or more personspresent holding or representing not less than two-thirds, or at any adjourned meeting not less than one-third, of the principal amount of the Notes for the time being outstanding. An ExtraordinaryResolution passed at any meeting of the Noteholders will be binding on all Noteholders, whether ornot they are present at the meeting.

14.2 Modification

The Fiscal Agent may agree, without the consent of the Noteholders, to any modification of any ofthese Conditions or any of the provisions of the Agency Agreement either (i) for the purpose of curingany ambiguity or of curing, correcting or supplementing any manifest or proven error or any otherdefective provision contained herein or therein or (ii) in any other manner which is not materiallyprejudicial to the interests of the Noteholders. Any modification shall be binding on the Noteholdersand, unless the Fiscal Agent agrees otherwise, any modification shall be notified by the Fiscal Agentto the Noteholders as soon as practicable thereafter in accordance with Condition 13.

15. FURTHER ISSUES

The Issuer may from time to time without the consent of the Noteholders create and issue furthernotes, having terms and conditions the same as those of the Notes, or the same except for the amountof the first payment of interest, which may be consolidated and form a single series with theoutstanding Notes, provided, however, that such further notes will be fungible for U.S. federal incometax purposes.

16. GOVERNING LAW AND SUBMISSION TO JURISDICTION

16.1 Governing Law

The Agency Agreement, the Deed of Covenant and the Notes are, and any non-contractual obligationsarising therefrom will be, governed by and will be construed in accordance with, English law.

16.2 Jurisdiction of English courts

The Issuer has irrevocably agreed for the benefit of the Noteholders that the courts of England are tohave exclusive jurisdiction to settle any disputes which may arise out of or in connection with theNotes and accordingly has submitted to the exclusive jurisdiction of the English courts. The Issuer haswaived any objection to the courts of England on the grounds that they are an inconvenient orinappropriate forum.

The Noteholders may take any suit, action or proceeding arising out of or in connection with the Notes(together referred to as Proceedings) against the Issuer in any other court of competent jurisdictionand concurrent Proceedings in any number of jurisdictions.

16.3 Consent to Enforcement

The Issuer agrees, without prejudice to the enforcement of a judgment obtained in the English courtsaccording to the provisions of Article 54 of the International Private and Procedural Law of Turkey(Law No. 5718), that in the event that any action is brought in relation to the Issuer in a court in Turkeyin connection with the Notes, any judgment obtained in the courts of England in connection with suchaction shall constitute conclusive evidence of the existence and amount of the claim against the Issuer,pursuant to the provisions of the first sentence of Article 193 of the Civil Procedure Code of Turkey(Law No. 6100) and Articles 58 and 59 of the International Private and Procedural Law of Turkey(Law No. 5718).

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16.4 Waiver of Immunity

To the extent that the Issuer may in any jurisdiction claim for itself or its assets or revenues immunityfrom suit, execution, attachment (whether in aid of execution, before judgment or otherwise) or otherlegal process and to the extent that such immunity, if any, (whether or not claimed) may be attributedin any such jurisdiction to the Issuer or its assets or revenues, the Issuer agrees: (i) not to claim; and(ii) irrevocably waives such immunity, in each case only to the fullest extent permitted by the laws ofsuch jurisdiction.

16.5 Other Documents

The Issuer has in the Agency Agreement and the Deed of Covenant submitted to the jurisdiction ofthe English courts and appointed an agent in England for service of process, in terms substantiallysimilar to those set out above.

16.6 Appointment of Process Agent

The Issuer hereby irrevocably and unconditionally appoints The Economic Counsellor of the Republicof Turkey at its registered office at 43 Belgrave Square, London SW1, United Kingdom as its agentfor service of process in England in respect of any Proceedings and undertakes that in the event ofsuch agent ceasing so to act it will appoint another person as its agent for that purpose.

17. RIGHTS OF THIRD PARTIES

No rights are conferred on any person under the Contracts (Rights of Third Parties) Act 1999 toenforce any term of this Note, but this does not affect any right or remedy of any person which existsor is available apart from that Act.

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THE GLOBAL CERTIFICATES

The Global Certificates contain the following provisions which apply to the Notes in respect of which theyare issued whilst they are represented by the Global Certificates, some of which modify the effect of theConditions. Terms defined in the Conditions have the same meaning in paragraphs 1 to 6 below.

1. ACCOUNTHOLDERS

For so long as any of the Notes are represented by the Global Certificates, each person (other than anotherclearing system) who is for the time being shown in the records of DTC or Euroclear or Clearstream,Luxembourg (as the case may be) as the holder of a particular aggregate principal amount of such Notes(each an “Accountholder”) (in which regard any certificate or other document issued by DTC or Euroclearor Clearstream, Luxembourg (as the case may be) as to the aggregate principal amount of such Notesstanding to the account of any person shall be conclusive and binding for all purposes) shall be treated as theholder of such aggregate principal amount of such Notes (and the expression “Noteholders” and referencesto “holding of Notes” and to “holder of Notes” shall be construed accordingly) for all purposes other thanwith respect to payments on such Notes, the right to which shall be vested, as against the Issuer, solely in thenominee for the relevant clearing system (the “Relevant Nominee”) in accordance with and subject to theterms of the Global Certificates. Each Accountholder must look solely to DTC or Euroclear or Clearstream,Luxembourg, as the case may be, for its share of each payment made to the Relevant Nominee.

2. CANCELLATION

Cancellation of any Note following its redemption or purchase by the Issuer or any of its Subsidiaries willbe effected by reduction in the aggregate principal amount of the Notes in the register of Noteholders and bythe annotation of the appropriate schedule to the relevant Global Certificate.

3. PAYMENTS

Payments of principal and interest in respect of Notes represented by a Global Certificate will be made uponpresentation or, if no further payment falls to be made in respect of the Notes, against presentation andsurrender of such Global Certificate to or to the order of the Fiscal Agent or such other Agent as shall havebeen notified to the holders of the Global Certificates for such purpose.

Distributions of amounts with respect to book-entry interests in the Unrestricted Notes held throughEuroclear or Clearstream, Luxembourg will be credited, to the extent received by the Fiscal Agent, to thecash accounts of Euroclear or Clearstream, Luxembourg participants in accordance with the relevantsystem’s rules and procedures.

Holders of book-entry interests in the Restricted Notes holding through DTC will receive, to the extentreceived by the Fiscal Agent, all distribution of amounts with respect to book-entry interests in such Notesfrom the Fiscal Agent through DTC. Distributions in the United States will be subject to relevant U.S. taxlaws and regulations.

A record of each payment made will be endorsed on the appropriate schedule to the relevant GlobalCertificate by or on behalf of the Fiscal Agent and shall be prima facie evidence that payment has been made.

4. NOTICES

So long as the Notes are represented by a Global Certificate and such Global Certificate is held on behalf ofa clearing system, notices to Noteholders may be given by delivery of the relevant notice to that clearingsystem for communication by it to entitled Accountholders in substitution for notification as required byCondition 13. Any such notice shall be deemed to have been given to the Noteholders on the day after theday on which such notice is delivered to Euroclear and/or Clearstream, Luxembourg (as the case may be) asaforesaid.

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Without prejudice to 7. Change of Control Put Exercise Notice’ below, whilst any of the Notes held by aNoteholder are represented by a Global Certificate, notices to be given by such Noteholder must be given bysuch Noteholder (where applicable) through the applicable clearing system’s operational procedures andotherwise in such manner as the Fiscal Agent and the applicable clearing system may approve for thispurpose.

5. REGISTRATION OF TITLE

Registration of title to Notes in a name other than that of the Relevant Nominee will not be permitted unlessEuroclear or Clearstream, Luxembourg or DTC, as appropriate, notifies the Issuer that it is unwilling orunable to continue as a clearing system in connection with a Global Certificate or, in the case of DTC only,DTC ceases to be a clearing agency registered under the U.S. Securities Exchange Act of 1934, and in eachcase a successor clearing system is not appointed by the Issuer within 90 days after receiving such noticefrom Euroclear, Clearstream, Luxembourg or DTC or becoming aware that DTC is no longer so registered.In these circumstances title to a Note may be transferred into the names of holders notified by the RelevantNominee in accordance with the Conditions, except that Certificates in respect of Notes so transferred maynot be available until 21 days after the request for transfer is duly made.

The Registrar will not register title to the Notes in a name other than that of the Relevant Nominee for aperiod of 15 calendar days preceding the due date for any payment of principal or interest in respect of theNotes.

If only one of the Global Certificates (the “Exchanged Global Certificate”) becomes exchangeable forCertificates in accordance with the above paragraphs, transfers of Notes may not take place between, on theone hand, persons holding Certificates issued in exchange for beneficial interests in the Exchanged GlobalCertificate and, on the other hand, persons wishing to purchase beneficial interests in the other GlobalCertificate.

6. TRANSFERS

Transfers of book-entry interests in the Notes will be effected through the records of Euroclear, Clearstream,Luxembourg and DTC and their respective participants in accordance with the rules and procedures ofEuroclear, Clearstream, Luxembourg and DTC and their respective direct and indirect participants, as morefully described under “Book-entry Clearance Systems—Clearing and Settlement Procedures.”

7. CHANGE OF CONTROL PUT EXERCISE NOTICE

For so long as any Note is represented by a Global Certificate, to exercise the right to require redemption ofall, but not some only, of its Notes under Condition 8.3 the Noteholder must, within the notice period set outin Condition 8.3, give notice to any Paying Agent of such exercise in accordance with the standardprocedures of Euroclear, Clearstream, Luxembourg or DTC, as applicable (which may include notice beinggiven on such Noteholder’s instruction by Euroclear, Clearstream, Luxembourg, DTC or any depositary forthem to any Paying Agent by electronic means) in a form acceptable to Euroclear, Clearstream, Luxembourgor DTC, as applicable, from time to time.

Any notice given in accordance with the standard procedures of Euroclear, Clearstream, Luxembourg orDTC, as applicable, given by a Noteholder under Condition 8.3 shall be irrevocable except where, prior tothe Change of Control Put Date (as defined in Condition 8.3), an Event of Default has occurred and iscontinuing, in which event such Noteholder, at its option, may elect by notice to the Issuer to withdraw thenotice given hereunder and instead to give notice to the Issuer that all, but not some only, of suchNoteholder’s Notes shall accordingly become forthwith due and repayable pursuant to Condition 11.

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BOOK-ENTRY CLEARANCE SYSTEMS

The information set out below is subject to any change in or reinterpretation of the rules, regulations andprocedures of each of DTC, Euroclear or Clearstream, Luxembourg (together, the “Clearing Systems”)currently in effect. The information in this section concerning the Clearing Systems has been obtained fromsources that the Issuer believes to be reliable, but none of the Issuer nor any Initial Purchaser takes anyresponsibility for the accuracy thereof. Investors wishing to use the facilities of the Clearing Systems areadvised to confirm the continued applicability of the rules, regulations and procedures of such facilities.

None of the Issuer nor any other party to the Agency Agreement will have any responsibility or liability forany aspect of the records relating to, or payments made on account of, beneficial ownership interests in theNotes held through the facilities of the Clearing Systems or for maintaining, supervising or reviewing anyrecords relating to such beneficial ownership interests.

Book-Entry Systems

Euroclear and Clearstream, Luxembourg

Euroclear and Clearstream, Luxembourg each hold securities for their customers and facilitate the clearanceand settlement of securities transactions by electronic book-entry transfer between their respective accountholders. Euroclear and Clearstream, Luxembourg provide various services including safekeeping,administration, clearance and settlement of internationally traded securities and securities lending andborrowing. Euroclear and Clearstream, Luxembourg also deal with domestic securities markets in severalcountries through established depositary and custodial relationships. Euroclear and Clearstream,Luxembourg have established an electronic bridge between their two systems across which their respectiveparticipants may settle trades with each other.

Euroclear and Clearstream, Luxembourg customers are worldwide financial institutions, includingunderwriters, securities brokers and dealers, banks, trust companies and clearing corporations. Indirectaccess to Euroclear and Clearstream, Luxembourg is available to other institutions that clear through ormaintain a custodial relationship with an account holder of either system.

DTC

DTC has advised the Issuer that it is a limited purpose trust company organized under the New York BankingLaw, a “banking organization” within the meaning of the New York Banking Law, a “clearing corporation”within the meaning of the New York Uniform Commercial Code and a “clearing agency” registered pursuantto Section 17A of the Exchange Act. DTC holds securities that its participants deposit with DTC. DTC alsofacilitates the settlement among its participants of securities transactions, such as transfers and pledges, indeposited securities through electronic computerized book-entry changes in participants’ accounts. Directparticipants include securities brokers and dealers, banks, trust companies, clearing corporations and certainother organizations. Access to the DTC system is also available to others such as securities brokers anddealers, banks and trust companies that clear through or maintain a custodial relationship with a directparticipant, either directly or indirectly.

Registration and Form

Book-entry interests in the Notes held through Euroclear and Clearstream, Luxembourg will be representedby the Unrestricted Global Certificate registered in the name of a nominee of, and held by, a commondepositary for Euroclear and Clearstream, Luxembourg. Book-entry interests in the Notes held through DTCwill be represented by the Restricted Global Certificate registered in the name of Cede & Co., as nomineefor DTC, and held by a custodian for DTC. As necessary, the Registrar will adjust the amounts of Notes onthe Register for the accounts of Euroclear, Clearstream, Luxembourg and DTC to reflect the amounts ofNotes held through Euroclear, Clearstream, Luxembourg and DTC, respectively. Beneficial ownership ofbook-entry interests in Notes will be held through financial institutions as direct and indirect participants inEuroclear, Clearstream, Luxembourg and DTC.

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The aggregate holdings of book-entry interests in the Notes in Euroclear, Clearstream, Luxembourg andDTC will be reflected in the book-entry accounts of each such institution. Euroclear, Clearstream,Luxembourg or DTC, as the case may be, and every other intermediate holder in the chain to the beneficialowner of book-entry interests in the Notes will be responsible for establishing and maintaining accounts fortheir participants and customers having interests in the book-entry interests in the Notes. The Registrar willbe responsible for maintaining a record of the aggregate holdings of Notes registered in the name of acommon nominee for Euroclear and Clearstream, Luxembourg, a nominee for DTC and/or, if individualCertificates are issued in the limited circumstances described under “The Global Certificates—Registrationof Title”, holders of Notes represented by those individual Certificates. The Fiscal Agent will be responsiblefor ensuring that payments received by it from the Issuer for holders of book-entry interests in the Notesholding through Euroclear and Clearstream, Luxembourg are credited to Euroclear or Clearstream,Luxembourg, as the case may be, and the Fiscal Agent will also be responsible for ensuring that paymentsreceived by the Fiscal Agent from the Issuer for holders of book-entry interests in the Notes holding throughDTC are credited to DTC.

The Issuer will not impose any fees in respect of holding the Notes; however, holders of book-entry interestsin the Notes may incur fees normally payable in respect of the maintenance and operation of accounts inEuroclear, Clearstream, Luxembourg or DTC.

Clearing and Settlement Procedures

Initial Settlement

Upon their original issue, the Notes will be in global form represented by the two Global Certificates.Interests in the Notes will be in uncertified book-entry form. Purchasers electing to hold book-entry interestsin the Notes through Euroclear and Clearstream, Luxembourg accounts will follow the settlement proceduresapplicable to conventional Eurobonds. Book-entry interests in the Notes will be credited to Euroclear andClearstream, Luxembourg participants’ securities clearance accounts on the business day following theClosing Date against payment (value the Closing Date). DTC participants acting on behalf of purchaserselecting to hold book-entry interests in the Notes through DTC will follow the delivery practices applicableto securities eligible for DTC’s Same Day Funds Settlement system. DTC participants’ securities accountswill be credited with book-entry interests in the Notes following confirmation of receipt of payment to theIssuer on the Closing Date.

Secondary Market Trading

Secondary market trades in the Notes will be settled by transfer of title to book-entry interests in the ClearingSystems. Title to such book-entry interests will pass by registration of the transfer within the records ofEuroclear, Clearstream, Luxembourg or DTC, as the case may be, in accordance with their respectiveprocedures. Book-entry interests in the Notes may be transferred within Euroclear and within Clearstream,Luxembourg and between Euroclear and Clearstream, Luxembourg in accordance with proceduresestablished for these purposes by Euroclear and Clearstream, Luxembourg. Book-entry interests in the Notesmay be transferred within DTC in accordance with procedures established for this purpose by DTC. Transferof book-entry interests in the Notes between Euroclear or Clearstream, Luxembourg and DTC may beeffected in accordance with procedures established for this purpose by Euroclear, Clearstream, Luxembourgand DTC.

General

None of Euroclear, Clearstream, Luxembourg or DTC is under any obligation to perform or continue toperform the procedures referred to above, and such procedures may be discontinued at any time.

None of the Issuer, the Fiscal Agent or any of their agents will have any responsibility for the performanceby Euroclear, Clearstream, Luxembourg or DTC or their respective participants of their respectiveobligations under the rules and procedures governing their operations or the arrangements referred to above.

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TAXATION

This is a general summary of certain United States federal, United Kingdom and Turkish tax considerationsin connection with an investment in the Notes. This summary does not address all aspects of United Statesfederal, United Kingdom and Turkish tax laws and does not discuss any state or local tax considerations.While this summary is considered to be a correct interpretation of existing laws in force on the date of thisOffering Memorandum, there can be no assurance that those laws or the interpretation of those laws will notchange. This summary does not discuss all of the tax consequences that may be relevant to an investor inlight of such investor’s particular circumstances or to investors subject to special rules, such as regulatedinvestment companies, certain financial institutions or insurance companies. Prospective investors areadvised to consult their tax advisers with respect to the tax consequences of the purchase, ownershipor disposition of the Notes (or the purchase, ownership or disposition of beneficial interests therein) aswell as any tax consequences that may arise under the laws of any state, municipality or other taxingjurisdiction.

Certain U.S. Federal Income Tax Consequences

The discussion of U.S. tax matters set forth in this Offering Memorandum was written in connectionwith the promotion or marketing of this Offering and was not intended or written to be used, andcannot be used, by any taxpayer for the purpose of avoiding tax-related penalties under U.S. federal,state or local tax law. Each taxpayer should seek advice based on its particular circumstances from anindependent tax adviser.

The following summary describes certain U.S. federal income tax consequences of the acquisition,ownership and disposition of a Note by a U.S. Holder (as defined below) whose functional currency is theU.S. Dollar that acquires the Note in this Offering from the Initial Purchasers at a price equal to the issueprice of the Notes (the first price at which a substantial amount of the Notes is sold for money to investors)and holds it as a capital asset. This summary does not address all aspects of U.S. federal income taxation thatmay be applicable to particular U.S. Holders subject to special U.S. federal income tax rules, including,among others, tax-exempt organizations, financial institutions, dealers and traders in securities or currencies,U.S. Holders that will hold a Note as part of a “straddle” hedging transaction, “conversion transaction” orother integrated transaction for U.S. federal income tax purposes, U.S. Holders that enter into “constructivesale” transactions with respect to the Notes, U.S. Holders liable for alternative minimum tax and certain U.S.expatriates. In addition this summary does not address consequences to U.S. Holders of the acquisition,ownership and disposition of a Note under any other U.S. federal tax laws (e.g., estate or gift tax laws) orunder the tax laws of any state, locality or other political subdivision of the United States or other countriesor jurisdictions.

As used herein, the term “U.S. Holder” means a beneficial owner of a Note that is for U.S. federal incometax purposes: (i) an individual who is a citizen or resident of the U.S.; (ii) a corporation created or organizedin or under the laws of the U.S., any state thereof or the District of Columbia; (iii) an estate, the income ofwhich is subject to U.S. federal income taxation regardless of its source; or (iv) a trust that is subject to U.S.tax on its worldwide income regardless of its source.

If an entity or arrangement treated as a partnership for U.S. federal income tax purposes holds a Note, theU.S. federal income tax treatment of a partner will generally depend upon the status of the partner and theactivities of the partnership. Therefore, a partnership holding a Note and its partners should consult their owntax advisers regarding the U.S. federal income tax consequences of the acquisition, ownership anddisposition of a Note.

The discussion below is based on the Internal Revenue Code of 1986, as amended (the “Code”), U.S.Treasury regulations thereunder, and judicial and administrative interpretations thereof, all as in effect as atthe date of this Offering Memorandum and any of which may at any time be repealed, revoked or modifiedor subject to differing interpretations, potentially retroactively, so as to result in U.S. federal income taxconsequences different from those discussed below.

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The summary of U.S. federal income tax consequences set out below is for general information only.Prospective purchasers should consult their tax advisers as to the particular tax consequences to themof owning the Notes, including the applicability and effect of state, local, foreign and other tax lawsand possible changes in tax law.

Payments of interest

Payments of interest on the Notes, including additional amounts, if any, generally will be taxable to a U.S.Holder as ordinary income at the time that such payments are received or accrued, in accordance with suchU.S. Holder’s usual method of accounting for U.S. federal income tax purposes. Interest income on a Notegenerally will constitute foreign source income for U.S. federal income tax purposes and generally will beconsidered “passive” income, which is treated separately from other types of income in computing theforeign tax credit that may be allowable to U.S. Holders under U.S. federal income tax laws. Subject toapplicable restrictions and limitations, a U.S. Holder may be entitled to claim a U.S. foreign tax credit inrespect of any Turkish withholding taxes imposed on interest received on the Notes. A U.S. Holder who doesnot elect to claim a credit for foreign tax may instead claim a deduction in respect of the tax provided theU.S. Holder elects to deduct rather than claim a credit for all foreign taxes for such taxable year. U.S. Holdersthat are eligible for benefits under the double tax treaty between the United States and Turkey (the “DoubleTax Treaty”) or are otherwise entitled to a refund for the taxes withheld, under Turkish tax law generallywill not be entitled to a foreign tax credit or deduction for the amount of any Turkish taxes withheld in excessof the maximum rate under the Double Tax Treaty or for those taxes that have been otherwise refunded tothem under Turkish tax law. The rules relating to foreign tax credits or deducting foreign taxes are extremelycomplex, and U.S. Holders are urged to consult their own tax advisors regarding the availability andadvisability of claiming a foreign tax credit or a deduction with respect to any Turkish taxes withheld frompayment.

Sale, exchange and redemption of Notes

Upon the sale, exchange, redemption, retirement at maturity or other taxable disposition of a Note, a U.S.Holder generally will recognize taxable gain or loss equal to the difference between the amount realized (i.e.,the amount of cash and the fair market value of any property) received on the disposition (except to the extentthe cash or property received is attributable to accrued and unpaid interest not previously included in income,which is treated like a payment of interest) and the U.S. Holder’s tax basis in the Note. A U.S. Holder’sadjusted tax basis in a Note generally will equal the amount paid for the Note. Gain or loss recognized by aU.S. Holder on the sale, exchange or other disposition of a Note will be capital gain or loss and will be long-term capital gain or loss if the Note was held by the U.S. Holder for more than one year. Gain or loss realizedby a U.S. Holder on the sale or retirement of a Note generally will be U.S. source. The deductibility of capitallosses is subject to significant limitations. U.S. Holders should consult their own advisors about theavailability of U.S. foreign tax credits or deductions with respect to any Turkish taxes imposed upon adisposition of Notes.

Information reporting and backup withholding

Information returns may be filed with the U.S. Internal Revenue Service (“IRS”) (unless the U.S. Holderestablishes, if requested to do so, that it is an exempt recipient) in connection with payments on the Notes,and the proceeds from the sale, exchange or other disposition of Notes. If information reports are requiredto be made, a U.S. Holder may be subject to U.S. backup withholding if it fails to provide its taxpayeridentification number, or to establish that it is exempt from backup withholding. The amount of any backupwithholding imposed on a payment will be allowed as a credit against any U.S. federal income tax liabilityof a U.S. Holder and may entitle the U.S. Holder to a refund, provided the required information is timelyfurnished to the IRS.

U.S. holders should consult their own tax advisers regarding any filing and reporting obligations they mayhave as a result of their acquisition, ownership or disposition of notes. Failure to comply with certainreporting obligations could result in the imposition of substantial penalties.

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Certain United Kingdom Tax Considerations

The following applies only to persons who are the beneficial owners of Notes and is a summary of theIssuer’s understanding of current law and practice in the United Kingdom relating to certain aspectsof United Kingdom taxation. Some aspects do not apply to certain classes of persons (such as dealers)to whom special rules may apply.

The United Kingdom tax treatment of prospective Noteholders depends on their individualcircumstances and may be subject to change in the future. Prospective Noteholders who may besubject to tax in a jurisdiction other than the United Kingdom or who are in any doubt as to their taxposition should seek their own professional advice.

Payment of Interest on the Notes

Payments of interest on the Notes may be made without withholding on account of United Kingdom incometax. However, Noteholders may wish to note that, in certain circumstances, HM Revenue & Customs(“HMRC”) has power to obtain information (including the name and address of the beneficial owner of theinterest) from any person in the United Kingdom who either pays or credits interest to or receives interestfor the benefit of a Noteholder. Information so obtained may, in certain circumstances, be exchanged byHMRC with the tax authorities of the jurisdiction in which the Noteholder is resident for tax purposes.

United Kingdom Corporation Tax Payers

In general, Noteholders which are within the charge to United Kingdom corporation tax will be charged totax as income on all returns, profits or gains on, and fluctuations in value of, the Notes (including fluctuationsattributable to exchange rates) broadly in accordance with their statutory accounting treatment.

Taxation of Chargeable Gains

A disposal of Notes by an individual Noteholder who is resident or ordinarily resident in the UnitedKingdom, or who carries on a trade, profession or vocation in the United Kingdom through a branch oragency to which the Notes are attributable, may give rise to a chargeable gain or an allowable loss for thepurposes of the taxation of capital gains.

Accrued Income Scheme

On a disposal of Notes by a Noteholder, any interest which has accrued since the last interest payment datemay be chargeable to tax as income under the rules of the accrued income scheme as set out in Part 12 ofthe Income Tax Act 2007, if that Noteholder is resident or ordinarily resident in the United Kingdom orcarries on a trade in the United Kingdom through a branch or agency to which the Notes are attributable.

Stamp Duty and Stamp Duty Reserve Tax (SDRT)

No stamp duty or SDRT is payable on the issue of the Notes or on a transfer of the Notes via DTC, Euroclearor Clearstream, Luxembourg.

Certain Turkish Tax Considerations

The following discussion is a summary of certain Turkish tax considerations relating to an investment by aperson who is a non-resident of Turkey in Notes of a Turkish company issued abroad. The discussion is basedupon current law and is for general information only. The discussion below is not intended to constitute acomplete analysis of all tax consequences relating to the acquisition, ownership or disposition of the Notesthat may be relevant to a decision to make an investment in the Notes. Furthermore, the discussion onlyrelates to the investment by a person where the Notes will not be held in connection with the conduct of atrade or business through a fixed place of business or a permanent representative which constitutes aPermanent Establishment (“PE”) in Turkey. Each investor should consult its own tax advisers concerning thetax considerations applicable to its particular situation. This discussion is based upon laws and relevant

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interpretations thereof in effect as at the date of this Offering Memorandum, all of which are subject tochange, possibly with a retroactive effect. In addition, it does not describe any tax consequences: (a) arisingunder the laws of any taxing jurisdiction other than Turkey or (b) applicable to a resident of Turkey or a non-resident operating through a PE in Turkey.

For Turkish tax purposes, a legal entity is a resident of Turkey if its corporate domicile or its effective placeof management is in Turkey.

A resident legal entity is subject to Turkish taxes on its worldwide income, whereas a non-resident legalentity is only liable to the Turkish taxes for the trading income derived through a PE or for the incomesourced in Turkey otherwise.

An individual is a resident of Turkey if such individual has established domicile in Turkey or stays in Turkeymore than six months in a calendar year. On the other hand, foreign individuals who stay in Turkey for sixmonths or more for a specific job or business or particular purposes that are specified in the Income Tax Laware not treated as a resident of Turkey. A resident individual is liable for Turkish taxes on his/her worldwideincome, whereas a non-resident individual is liable for Turkish tax for the income sourced in Turkey.

Interest income from capital investment is deemed to be sourced in Turkey when the principal is invested inTurkey. Capital gain derived from trading income is considered sourced in Turkey when the activity ortransaction generating such income is performed or accounted for in Turkey. The term “accounted for”means that a payment is made in Turkey, or if the payment is made abroad, it is recorded in the books inTurkey.

Any withholding tax levied on income derived by a non-resident person is the final tax for the non-residentperson and no further declaration is needed. Any other income of a non-resident person sourced in Turkeythat has not been subject to withholding tax will be subject to taxation through declaration where exemptionsare reserved.

Interest paid on notes (such as the Notes) issued abroad by Turkish corporates is subject to withholding tax.Through a Decree dated 29 December 2010 numbered 2010/1182, the withholding tax rates are set accordingto the maturity of notes issued abroad as follows:

• 10% withholding tax for notes with a maturity of less than 1 year,

• 7% withholding tax for notes with a maturity of at least 1 year and less than 3 years,

• 3% withholding tax for notes with a maturity of at least 3 years and less than 5 years, and

• 0% withholding tax for notes with a maturity of 5 years and more.

Such withholding tax is the final tax for a non-resident person and no further declaration is required.

According to the Income Tax Law, capital gains are not taxed through withholding tax and therefore anycapital gain sourced in Turkey with respect to the Notes may be subject to declaration. However, pursuant tothe amendment made by Law No. 6111 to the temporary article 67 of the Income Tax Law, capital gainsderived from the notes of a Turkish corporate issued abroad shall not be declared. Moreover, the capitalgains derived from the notes of a Turkish corporate issued abroad are also not subject to withholding tax.Therefore, no tax is levied on the non-resident persons on capital gains from such Notes and no declarationis required.

A non-resident holder will not be liable for Turkish estate, inheritance or similar tax with respect to itsinvestment in the Notes, nor will it be liable for any Turkish stamp issue, registration or similar tax or dutyrelating thereto.

Reduced Withholding Tax Rates

Under current Turkish laws and regulations, interest payments on notes by an issuer to a non-resident holderwill be subject to a withholding tax at a rate between 10% and 0% in Turkey, as detailed above.

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If a Double Taxation Treaty is in effect between Turkey and the country of the holder of the notes (in somecases, for example, pursuant to the treaties with the United Kingdom and the United States, the term“beneficial owner” is used), which provides for the application of a lower withholding tax rate than thecurrent rate to be applied by the corporation, then the lower rate may be applicable. For the application ofwithholding at a reduced rate that benefits from the provisions of a Double Taxation Treaty concludedbetween Turkey and the relevant jurisdiction where the investor is a resident, an original copy of thecertificate of residence signed by the competent authority referred to in Article 3 of the Double TaxationTreaty is required, together with a translated copy translated by a translation office, to verify that the investoris subject to taxation over its worldwide gains in the relevant jurisdiction on the basis of resident taxpayerstatus, as a resident of the relevant jurisdiction to the related tax office directly or through the banks andintermediary institutions prior to the application of withholding. In the event the certificate of residence isnot delivered prior to the application of withholding tax, then upon the subsequent delivery of the certificateof residence, refunding of the excess tax shall be granted pursuant to the provisions of the relevant DoubleTaxation Treaty and the Turkish tax legislation.

EU Savings Directive

Under EC Council Directive 2003/48/EC on the taxation of savings income, member states are required toprovide to the tax authorities of another member state details of payments of interest (or similar income) paidby a person within its jurisdiction to an individual resident in that other member state or to certain limitedtypes of entities established in that other member state. However, for a transitional period, Luxembourg andAustria are instead required (unless during that period they elect otherwise) to operate a withholding systemin relation to such payments (the ending of such transitional period being dependent upon the conclusion ofcertain other agreements relating to information exchange with certain other countries). A number of non-EU countries and territories including Switzerland have adopted similar measures (a withholding system inthe case of Switzerland).

The European Commission has proposed certain amendments to the Directive, which may, if implemented,amend or broaden the scope of the requirements described herein.

THE ABOVE SUMMARIES ARE NOT INTENDED TO CONSTITUTE A COMPLETE ANALYSISOF ALL TAX CONSEQUENCES RELATING TO THE INVESTMENT IN THE NOTES.PROSPECTIVE INVESTORS SHOULD CONSULT THEIR OWN TAX ADVISERS CONCERNINGTHE TAX CONSEQUENCES OF THEIR PARTICULAR SITUATIONS. THIS DISCUSSION ISBASED UPON LAWS AND RELEVANT INTERPRETATIONS THEREOF IN EFFECT AS AT THEDATE OF THIS OFFERING MEMORANDUM.

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CERTAIN ERISA CONSIDERATIONS

PURSUANT TO IRS CIRCULAR 230 THE BANK HEREBY INFORMS YOU THAT THEDISCUSSION HEREIN WITH RESPECT TO ERISA CONSIDERATIONS IS NOT INTENDED ORWRITTEN BY THE ISSUER, ITS COUNSEL OR THE U.S. TAX COUNSEL TO BE USED, ANDCANNOT BE USED, BY ANY PERSON FOR THE PURPOSE OF AVOIDING PENALTIES THATMAY BE IMPOSED UNDER U.S. TAX LAWS. THIS DISCUSSION IS PROVIDED TO SUPPORTTHE PROMOTION OR MARKETING OF THE NOTES. THIS DISCUSSION IS LIMITED TOTHE TAX ISSUES DESCRIBED HEREIN. EACH TAXPAYER SHOULD SEEK ADVICE BASEDUPON THE TAXPAYER’S PARTICULAR CIRCUMSTANCES FROM AN INDEPENDENT TAXADVISER CONCERNING THE POTENTIAL TAX CONSEQUENCES OF AN INVESTMENT INTHE NOTES.

The following description is general in nature, is not intended to be all-inclusive, and is based on the law andpractice in force at the date of this document and is subject to any subsequent changes therein. In view of theindividual nature of ERISA, Code and Similar Law consequences, each potential investor that is a BenefitPlan (as defined below) or any plan subject to Similar Law is advised to consult its own legal adviser withrespect to the specific ERISA, Code and any U.S. Federal, State, local or non-U.S. law that is substantiallysimilar to Section 406 of ERISA or Section 4975 of the U.S. Tax Code (“Similar Law”) consequences ofinvesting in the Notes and to make its own independent decision with respect to any such investment. Thefollowing is merely a summary and should not be construed as legal advice.

Subject to the following discussion, the Notes may be acquired by pension, profit-sharing or other employeebenefit plans subject to the provisions of Part 4 of Subtitle B of Title I of ERISA, as well as individualretirement accounts, Keogh plans and other plans covered by Section 4975 of the Code, as well as entitiesdeemed to hold “plan assets” of any of the foregoing under ERISA and the U.S. Department of LaborRegulation 29 CFR Section 2510.3-101 promulgated under ERISA (as modified by Section 3(42) of ERISA)(the “Plan Asset Regulation”) (each such entity, a “Benefit Plan”). Section 406 of ERISA and Section 4975of the Code prohibit a Benefit Plan from engaging in certain transactions with persons that are “parties ininterest” under ERISA or “disqualified persons” under the Code with respect to such Benefit Plan. Aviolation of these “prohibited transaction” rules may result in an excise tax or other penalties and liabilitiesunder ERISA and the Code for such persons or the fiduciaries of the Benefit Plan. In addition, Title I ofERISA also requires fiduciaries of a Benefit Plan subject to ERISA to make investments that are prudent,diversified and in accordance with the governing plan documents.

If the assets of the Issuer were deemed to be plan assets of Benefit Plans that purchased Notes: (a) if anysuch Benefit Plans are subject to ERISA, ERISA’s fiduciary standards would apply to the Issuer and mightmaterially affect the operations of the Issuer, and (b) any transactions involving the Issuer could be deemeda transaction with each Benefit Plan and may cause certain transactions into which the Issuer might enter inthe ordinary course of business to constitute prohibited transactions under ERISA and/or Section 4975 of theCode. Under the Plan Asset Regulation, the assets of the Issuer would be treated as plan assets of a BenefitPlan for the purposes of ERISA and the Code only if the Benefit Plan acquired an “equity interest” in theIssuer and none of the exceptions to holding plan assets contained in the Plan Asset Regulation wereapplicable. An equity interest is defined under the Plan Asset Regulation as an interest other than aninstrument that is treated as indebtedness under applicable local law and that has no substantial equityfeatures.

Without regard to whether the Notes are treated as an equity interest for purposes of the Plan AssetRegulation, the acquisition or holding of Notes by or on behalf of a Benefit Plan could be considered to giverise to a prohibited transaction if the Issuer, the Initial Purchasers, the Fiscal Agent or any of their respectiveaffiliates or any other party involved in the transactions contemplated hereunder is or becomes a party ininterest or a disqualified person with respect to such Benefit Plan. Certain exemptions from the prohibitedtransaction rules could be applicable to the purchase and holding of Notes by a Benefit Plan depending onthe type and circumstances of the plan fiduciary making the decision to acquire such Notes. Exemptions thatmay apply include, but are not limited to: Prohibited Transaction Class Exemption (“PTCE”) 96-23,regarding transactions effected by “in-house asset managers”; PTCE 95-60, as modified, regarding

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investments by insurance company general accounts; PTCE 91-38, as modified, regarding investments bybank collective investment funds; PTCE 90-1, regarding investments by insurance company pooled separateaccounts; and PTCE 84-14, as modified, regarding transactions effected by “qualified professional assetmanagers.” In addition to the class exemptions listed above, there are statutory exemptions under Section408(b)(17) of ERISA and Section 4975(d)(20) of the Code for prohibited transactions between a Benefit Planand a person or entity that is a party in interest to such Benefit Plan solely by reason of providing servicesto the Benefit Plan (other than a party in interest that is a fiduciary, or its affiliate, that has or exercisesdiscretionary authority or control or renders investment advice with respect to the assets of the Benefit Planinvolved in the transaction for a fee, directly or indirectly), provided that there is adequate consideration forthe transaction. Even if the conditions specified in one or more of these exemptions are met, the scope of therelief provided by these exemptions might or might not cover all acts that might be construed as prohibitedtransactions. There can be no assurance that any of these, or any other exemption, will be available withrespect to any particular transaction involving the Notes and prospective purchasers that are Benefit Plansshould consult with their advisers regarding the applicability of any such exemption.

Accordingly, by acquiring a Note (or a beneficial interest therein), each purchaser and transferee will bedeemed to represent and warrant that: (a) either: (i) it is not and for as long as it holds the Notes (or anybeneficial interest therein) will not be, and is not acting on behalf of (and for so long as it holds any Note orbeneficial interest therein will not be acting on behalf of), an “employee benefit plan” as defined in Section3(3) of ERISA, that is subject to the provisions of part 4 of Subtitle B of Title I of ERISA, any “plan” asdefined in and to which Section 4975 of the Code applies, any entity whose underlying assets are deemed toinclude “plan assets” of any of the foregoing under ERISA and the Plan Asset Regulation, or a governmental,church or non-U.S. plan subject to any Similar Law, or (ii) the acquisition, holding and disposition of suchNote (or a beneficial interest therein) does not and will not constitute or result in a non-exempt prohibitedtransaction under ERISA or Section 4975 of the Code (or, in the case of a governmental, church, or non-U.S.plan, a violation of any Similar Laws), and (b) it agrees not to sell or otherwise transfer any interest in theNotes otherwise than to an acquirer or transferee that is deemed to make these same representations,warranties and agreements with respect to its acquisition, holding and disposition of such Notes.

Employee benefit plans that are governmental plans (as defined in Section 3(32) of ERISA), certain churchplans (as defined in Section 3(33) of ERISA) and employee benefit plans subject to non-U.S. law are notsubject to ERISA’s requirements, although they may be subject to similar provisions under Similar Law.Accordingly, assets of such plans may be invested in the Notes without regard to the ERISA considerationsdiscussed above, subject to satisfaction of the provisions of Similar Law.

EACH INVESTOR CONSIDERING THE PURCHASE OF NOTES (OR A BENEFICIAL INTERESTTHEREIN) SHOULD CONSULT ITS LEGAL AND OTHER ADVISERS REGARDING WHETHER THENOTES WOULD BE AN APPROPRIATE INVESTMENT, TAKING INTO ACCOUNT ERISA AND THECODE AND OTHER ISSUES DISCUSSED ABOVE. A FIDUCIARY OF A PLAN SUBJECT TOSIMILAR LAW CONSIDERING THE PURCHASE OF NOTES (OR A BENEFICIAL INTERESTTHEREIN) SHOULD CONSULT ITS LEGAL ADVISERS REGARDING THE APPLICABILITY OFTHE PROVISIONS OF SIMILAR LAW AND WHETHER THE NOTES WOULD BE AN APPROPRIATEINVESTMENT FOR THE PLAN UNDER SIMILAR LAW. THE SALE OF NOTES (OR ANYBENEFICIAL INTEREST THEREIN) TO A BENEFIT PLAN OR TO A PLAN SUBJECT TO SIMILARLAW IS IN NO RESPECT A REPRESENTATION BY THE ISSUER THAT THIS INVESTMENT MEETSALL THE RELEVANT LEGAL REQUIREMENTS WITH RESPECT TO INVESTMENT BY BENEFITPLANS OR PLANS SUBJECT TO SIMILAR LAW GENERALLY OR BY ANY PARTICULAR BENEFITPLAN OR PLAN SUBJECT TO SIMILAR LAW, OR THAT THIS INVESTMENT IS APPROPRIATE FORBENEFIT PLANS OR PLANS SUBJECT TO SIMILAR LAW GENERALLY OR FOR ANYPARTICULAR BENEFIT PLAN OR PLAN SUBJECT TO SIMILAR LAW.

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PLAN OF DISTRIBUTION

The Issuer intends to offer the Notes through the Initial Purchasers and their broker-dealer affiliates, asapplicable, named below. Subject to the terms and conditions stated in a subscription agreement dated 18April 2012 (the “Subscription Agreement”), among the Initial Purchasers and the Issuer, each of the InitialPurchasers has severally agreed to purchase, and the Issuer has agreed to sell to each of the Initial Purchasers,the principal amount of the Notes set forth opposite each Initial Purchaser’s name below.

PrincipalAmount of

NotesInitial Purchasers (U.S. dollars)––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––– —––———Barclays Bank PLC .............................................................................................................................................................. 125,000,000Citigroup Global Markets Limited........................................................................................................................................ 125,000,000ING Bank N.V., London Branch .......................................................................................................................................... 125,000,000Standard Chartered Bank ...................................................................................................................................................... 125,000,000

—––———TOTAL ................................................................................................................................................................................ 500,000,000

—––————––———The Subscription Agreement provides that the obligations of the Initial Purchasers to purchase the Notes aresubject to approval of legal matters by counsel and to other conditions. The Initial Purchasers must purchaseall the Notes if they purchase any of the Notes. The offering of the Notes by the Initial Purchasers is subjectto receipt and acceptance and subject to the Initial Purchasers’ right to reject any order in whole or in part.

The Issuer has been informed that the Initial Purchasers propose to resell the Notes at the offering prices setforth on the cover page of this Offering Memorandum within the United States to persons reasonablybelieved to be qualified institutional buyers (as defined in Rule 144A) in reliance upon Rule 144A, and tonon-U.S. persons outside the United States in reliance upon Regulation S. See “Transfer Restrictions.” Theprices at which the Notes are offered may be changed at any time without notice.

Offers and sales of the Notes in the United States will be made by those Initial Purchasers or their affiliatesthat are registered broker-dealers under the United States Securities Exchange Act of 1934, as amended (the“Exchange Act”), or in accordance with Rule 15a-6 thereunder.

The Notes have not been registered under the Securities Act or any state securities laws and may not beoffered or sold within the United States or to, or for the account or benefit of, U.S. persons (as defined inRegulation S under the Securities Act) except in transactions exempt from, or not subject to, the registrationrequirements of the Securities Act. See “Transfer Restrictions.”

Accordingly, until 40 days after the commencement of this offering, an offer or sale of Notes within theUnited States by a dealer (whether or not participating in the offering) may violate the registrationrequirements of the Securities Act if that offer or sale is made otherwise than in accordance with Rule 144A.

The Notes will constitute a new class of securities of the Bank with no established trading market. The Bankcannot assure you that the prices at which the Notes will sell in the market after this offering will not be lowerthan the initial offering price or that an active trading market for the Notes will develop and continue afterthis offering. The Initial Purchasers have advised the Bank that they currently intend to make a market in theNotes. However, they are not obligated to do so, and they may discontinue any market-making activities withrespect to the Notes at any time without notice. Accordingly, the Bank cannot assure you as to the liquidityof or the trading market for the Notes.

In connection with the offering, the Initial Purchasers may purchase and sell Notes in the open market. Thesetransactions may include overallotment, syndicate covering transactions and stabilizing transactions.Overallotment involves the sale of Notes in excess of the principal amount of Notes to be purchased by theInitial Purchasers in this offering, which creates a short position for the Initial Purchasers. Coveringtransactions involve the purchase of the Notes in the open market after the distribution has been completedin order to cover short positions. Stabilizing transactions consist of certain bids or purchases of Notes madefor the purpose of preventing or retarding a decline in the market price of the Notes while the offering is inprogress. Any of these activities may have the effect of preventing or retarding a decline in the market price

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of the Notes. They may also cause the price of the Notes to be higher than the price that otherwise wouldexist in the open market in the absence of these transactions. The Initial Purchasers may conduct thesetransactions in the over-the-counter market or otherwise. If the Initial Purchasers commence any of thesetransactions, they may discontinue them at any time.

The Issuer expects that delivery of the Notes will be made against payment therefor on the closing datespecified on the cover page of this Offering Memorandum, which will be the fifth New York business dayfollowing the date of pricing of the Notes (this settlement cycle being referred to as “T+5”). Under Rule15c6-l of the Exchange Act, trades in the secondary market generally are required to settle in three New Yorkbusiness days, unless the parties to any such trade expressly agree otherwise. Accordingly, purchasers whowish to trade Notes on the date of this Offering Memorandum or the next succeeding New York business daywill be required, by virtue of the fact that the Notes initially will settle in T+5, to specify an alternatesettlement cycle at the time of any such trade to prevent a failed settlement. Purchasers of Notes who wishto trade Notes on the date of this Offering Memorandum or the next succeeding New York business dayshould consult their own adviser.

The Initial Purchasers and their respective affiliates are full service financial institutions engaged in variousactivities, which may include securities trading, commercial and investment banking, financial advisory,investment management, principal investment, hedging, financing and brokerage activities. The InitialPurchasers or their respective affiliates may have performed investment banking and advisory services forthe Issuer and its affiliates from time to time for which they may have received customary fees and expenses.The Initial Purchasers or their respective affiliates may, from time to time, engage in transactions with andperform advisory and other services for the Issuer and its affiliates in the ordinary course of their business.

In the ordinary course of their various business activities, the Initial Purchasers and their respective affiliatesmay make or hold a broad array of investments and actively trade debt and equity securities (or relatedderivative securities) and financial instruments (including bank loans) for their own account and for theaccounts of their customers and may at any time hold long and short positions in such securities andinstruments. Such investment and securities activities may involve securities and instruments of the Issuer.

The Issuer has agreed to indemnify the several Initial Purchasers against certain liabilities, includingliabilities under the Securities Act, or to contribute to payments that the Initial Purchasers may be requiredto make because of those liabilities.

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ADDITIONAL SELLING RESTRICTIONS

NOTICE TO RESIDENTS OF TURKEY

THE OFFERING OF THE NOTES WILL BE REGISTERED WITH THE CMB ONLY FOR THEPURPOSE OF THE SALE OF THE NOTES OUTSIDE OF TURKEY IN ACCORDANCE WITHARTICLE 15(B) OF DECREE 32, BANKING REGULATIONS, THE CAPITAL MARKETS LAW ANDARTICLES 6 AND 25 OF THE COMMUNIQUÉ. THE NOTES (OR BENEFICIAL INTERESTSTHEREIN) HAVE TO BE OFFERED OR SOLD TO REAL PERSONS AND LEGAL ENTITIESDOMICILED OUTSIDE OF TURKEY IN ACCORDANCE WITH THE BRSA DECISION DATED 6MAY 2010 NO. 3665 (AS NOTIFIED BY THE BRSA IN ITS LETTER TO THE TURKISH BANKINGASSOCIATION, DATED 10 MAY 2010 AND NUMBERED B.02.1.BDK.0.11.00.00.31.2 9392) AND THECMB HAS AUTHORISED THE OFFERING OF THE NOTES; PROVIDED THAT, FOLLOWING THEPRIMARY SALE OF THE NOTES, NO TRANSACTION THAT MAY BE DEEMED AS A SALE OF THENOTES (OR BENEFICIAL INTERESTS THEREIN) IN TURKEY BY WAY OF PRIVATE PLACEMENTOR PUBLIC OFFERING MAY BE ENGAGED IN. HOWEVER, PURSUANT TO ARTICLE 15(D)(II) OFDECREE 32, THERE IS NO RESTRICTION ON THE PURCHASE OR SALE OF THE NOTES (ORBENEFICIAL INTERESTS THEREIN) IN SECONDARY MARKETS BY RESIDENTS OF TURKEY;PROVIDED THAT THEY PURCHASE OR SELL SUCH NOTES (OR BENEFICIAL INTERESTS) INTHE FINANCIAL MARKETS OUTSIDE OF TURKEY AND SUCH SALE AND PURCHASE IS MADETHROUGH BANKS AND/OR LICENSED BROKERAGE INSTITUTIONS AUTHORISED PURSUANTTO CMB REGULATIONS. THE REGISTRATION CERTIFICATE RELATING TO THE NOTES ISEXPECTED TO BE OBTAINED FROM THE CMB ON OR ABOUT 20 APRIL 2012.

NOTICE TO RESIDENTS OF THE UNITED KINGDOM

In the United Kingdom, this Offering Memorandum is being distributed only to and is directed only at: (a)persons who have professional experience in matters relating to investments falling within Article 19(5) ofthe Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the “Order”), (b) high networth bodies corporate falling within Article 49(2) of the Order and (c) any other persons to whom it mayotherwise lawfully be communicated (all such persons together being referred to as “relevant persons”).Each Initial Purchaser has represented and agreed that: (a) it has only communicated or caused to becommunicated and will only communicate or cause to be communicated an invitation or inducement toengage in investment activity (within the meaning of Section 21 of the Financial Services and Markets Act2000 (the “FSMA”)) received by it in connection with the issue or sale of any Notes in circumstances inwhich Section 21(1) of the FSMA does not apply to the Issuer; and (b) it has complied and will comply withall applicable provisions of the FSMA in respect of anything done by it in relation to any Notes in, from orotherwise involving the United Kingdom.

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TRANSFER RESTRICTIONS

Because the following restrictions will apply with respect to the Notes, purchasers of the Notes are advisedto consult legal counsel prior to making an offer, resale, pledge or transfer of any of the Notes.

According to Article 15 d(ii) of Decree 32 regarding the Protection of the Value of the Turkish Currency,residents in Turkey shall be free to purchase and sell securities and other capital market instruments tradedon financial markets outside of Turkey, and to transfer their purchasing proceeds abroad through banks andthe intermediary institutions authorized in accordance with capital market legislation.

The Bank has not registered the Notes under the Securities Act or the laws of any state securities commissionand, therefore, the Notes may not be offered or sold within the United States or to, or for the account orbenefit of, U.S. persons (as defined in Regulation S under the Securities Act) except pursuant to anexemption from, or in a transaction not subject to, the registration requirements of the Securities Act.Accordingly, the Notes are being offered and sold only (1) to persons reasonably believed to be “qualifiedinstitutional buyers” or “QIBs“(as defined in Rule 144A under the Securities Act), that are also “qualifiedpurchasers” or “QPs” (as defined in Section 2(a)(51)(A) of the U.S. Investment Company Act of 1940, asamended) in compliance with Rule 144A under the Securities Act and (2) to non-U.S. persons outside theUnited States in compliance with Regulation S under the Securities Act.

Each purchaser and subsequent transferee of a Note (or any beneficial interest therein) will be deemed tohave represented and warranted that (a) either: (i) it is not and for as long as it holds the Notes (or anybeneficial interest therein) will not be, and is not acting on behalf of (and for so long as it holds any Note orbeneficial interest therein will not be acting on behalf of), an “employee benefit plan” as defined in Section3(3) of ERISA, that is subject to the provisions of part 4 of Subtitle B of Title I of ERISA, any “plan” asdefined in and to which Section 4975 of the Code applies, any entity whose underlying assets are deemed toinclude “plan assets” of any of the foregoing under ERISA and the Plan Asset Regulation, or a governmental,church or non-U.S. plan subject to any Similar Law, or (ii) the acquisition, holding and disposition of suchNote (or a beneficial interest therein) does not and will not constitute or result in a non-exempt prohibitedtransaction under ERISA or Section 4975 of the Code (or, in the case of a governmental, church, or non-U.S.plan, a violation of any Similar Laws), and (b) it agrees not to sell or otherwise transfer any interest in theNotes otherwise than to an acquirer or transferee that is deemed to make these same representations,warranties and agreements with respect to its acquisition, holding and disposition of such Notes.

Rule 144A Notes

Each purchaser of a beneficial interest in a Rule 144A Note, by accepting delivery of this OfferingMemorandum and the Rule 144A Notes, will be deemed to have represented, agreed and acknowledged that:

It is (a) a QIB that is also a QP, (b) not a broker dealer which owns and invests on a discretionary basis lessthan USD 25 million in securities of unaffiliated issuers, (c) not a participant directed employee plan, suchas a 401(k) plan, (d) acquiring such Notes for its own account, or the account of one or more QIBs each ofwhich is also a QP, (e) not formed for the purpose of investing in the Rule 144A Notes or the Issuer, and (f)aware, and each beneficial owner of such Notes has been advised, that the seller of such Rule 144A Notesmay be relying on the exemption from the provisions of Section 5 of the Securities Act provided by Rule144A.

It will (a) along with each account for which it is purchasing, hold and transfer interests in the Rule 144ANotes in a principal amount that is not less than USD 200,000 and (b) provide notice of the transferrestrictions set forth herein to any subsequent transferees. In addition, it understands that the Issuer mayreceive a list of participants holding positions in the Issuer’s securities from one or more book entrydepositories.

It understands that the Rule 144A Notes have not been and will not be registered under the Securities Actand may not be offered, sold, pledged or otherwise transferred except (a) in accordance with Rule 144A toa person that it and any person acting on its behalf reasonably believe is a QIB and that is also a QPpurchasing for its own account or for the account of one or more QIBs, each of which is also a QP or (b) to

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a non U.S. person within the meaning of Regulation S in an offshore transaction in accordance with Rule903 or Rule 904 of Regulation S under the Securities Act, in each case in accordance with any applicablesecurities laws of any State of the United States.

It understands that the Issuer has the power to compel any beneficial owner of Rule 144A Notes that is a U.S.person and is not a QIB and a QP to sell its interest in the Rule 144A Notes, or may sell such interest onbehalf of such owner. The Issuer has the right to refuse to honor the transfer of an interest in the Rule 144ANotes to a U.S. person who is not a QIB and a QP.

It understands that the Rule 144A Global Note Certificates and any Rule 144A Individual Note Certificatesissued in exchange thereof, unless otherwise agreed between the Issuer and the Agents in accordance withapplicable law, will bear a legend to the following effect:

THE NOTES REPRESENTED HEREBY AND THE LOAN IN RESPECT THEREOF HAVE NOTBEEN AND WILL NOT BE REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, ASAMENDED (THE “SECURITIES ACT”), OR WITH ANY SECURITIES REGULATORYAUTHORITY OF ANY STATE OR OTHER JURISDICTION OF THE UNITED STATES, AND THENOTES REPRESENTED HEREBY MAY NOT BE OFFERED, SOLD, PLEDGED OROTHERWISE TRANSFERRED EXCEPT (I) IN ACCORDANCE WITH RULE 144A UNDER THESECURITIES ACT (“RULE 144A”) TO A PERSON THAT THE HOLDER AND ANY PERSONACTING ON ITS BEHALF REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONALBUYER WITHIN THE MEANING OF RULE 144A (A “QIB”) AND THAT IS A QUALIFIEDPURCHASER (“QP”) WITHIN THE MEANING OF SECTION 2(a)(51)(A) OF THE U.S.INVESTMENT COMPANY ACT OF 1940, AS AMENDED (THE “INVESTMENT COMPANYACT”) PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF ONE OR MOREQIBs EACH OF WHICH IS A QP WHOM THE HOLDER HAS INFORMED, IN EACH CASE,THAT SUCH OFFER, SALE, PLEDGE OR OTHER TRANSFER IS BEING MADE IN RELIANCEON RULE 144A UNDER THE SECURITIES ACT, AND IN AN AMOUNT FOR EACH ACCOUNTOF NOT LESS THAN USD 200,000 PRINCIPAL AMOUNT OF NOTES OR (2) IN AN OFFSHORETRANSACTION TO A PERSON WHO IS NOT A U.S. PERSON WITHIN THE MEANING OFREGULATION S UNDER THE SECURITIES ACT (“REGULATION S”) IN ACCORDANCE WITHRULE 903 OR RULE 904 OF REGULATION S, AND, IN EACH CASE IN ACCORDANCE WITHANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES, AND THEHOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANYPURCHASER FROM IT OF THE NOTES REPRESENTED HEREBY IN RESPECT HEREOF OFTHE RESALE RESTRICTIONS REFERRED TO ABOVE. ANY TRANSFER IN VIOLATION OFTHE FOREGOING WILL BE OF NO FORCE OR EFFECT, WILL BE VOID AB INITIO, ANDWILL NOT OPERATE TO TRANSFER ANY RIGHTS TO THE TRANSFEREE,NOTWITHSTANDING ANY INSTRUCTIONS TO THE CONTRARY TO THE ISSUER OF THISNOTE, THE PAYING AGENT OR ANY INTERMEDIARY. NO REPRESENTATION CAN BEMADE AS TO THE AVAILABILITY OF ANY EXEMPTION UNDER THE SECURITIES ACT FORRESALES OF THIS NOTE.

IF THE BENEFICIAL OWNER HEREOF IS A U.S. PERSON WITHIN THE MEANING OFREGULATION S, SUCH BENEFICIAL OWNER REPRESENTS THAT (1) IT IS A QIB THAT ISALSO A QP; (2) IT IS NOT A BROKER DEALER WHICH OWNS AND INVESTS ON ADISCRETIONARY BASIS LESS THAN USD 25,000,000 IN SECURITIES OF UNAFFILIATEDISSUERS; (3) IT IS NOT A PARTICIPANT DIRECTED EMPLOYEE PLAN, SUCH AS A 401(k)PLAN; (4) IT IS HOLDING THE NOTES REPRESENTED HEREBY FOR ITS OWN ACCOUNTOR FOR THE ACCOUNT OF ONE OR MORE QIBs, EACH OF WHICH IS A QP; (5) IT WAS NOTFORMED FOR THE PURPOSE OF INVESTING IN THE ISSUER OR THE NOTESREPRESENTED HEREBY; (6) IT UNDERSTANDS THAT THE ISSUER MAY RECEIVE A LISTOF PARTICIPANTS HOLDING POSITIONS IN ITS SECURITIES FROM ONE OR MORE BOOKENTRY DEPOSITARIES AND (7) IT WILL PROVIDE NOTICE OF THE FOREGOINGTRANSFER RESTRICTIONS TO ITS SUBSEQUENT TRANSFEREES.

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THE BENEFICIAL OWNER HEREOF HEREBY ACKNOWLEDGES THAT IF AT ANY TIMEWHILE IT HOLDS AN INTEREST IN THIS NOTE IT IS A U.S. PERSON WITHIN THEMEANING OF REGULATION S THAT IS NOT A QIB AND A QP, THE ISSUER MAY (A)COMPEL IT TO SELL ITS INTEREST IN THIS NOTE TO A PERSON WHO IS (I) A U.S. PERSONWHO IS A QIB AND A QP THAT IS, IN EACH CASE, OTHERWISE QUALIFIED TO PURCHASETHE NOTES REPRESENTED HEREBY IN A TRANSACTION EXEMPT FROM REGISTRATIONUNDER THE SECURITIES ACT OR (II) NOT A U.S. PERSON WITHIN THE MEANING OFREGULATION S OR (B) COMPEL THE BENEFICIAL OWNER TO SELL ITS INTEREST INTHE NOTES REPRESENTED HEREBY TO THE ISSUER OR AN AFFILIATE OF THE ISSUEROR TRANSFER ITS INTEREST IN THIS NOTE TO A PERSON DESIGNATED BY ORACCEPTABLE TO THE ISSUER AT A PRICE EQUAL TO THE LESSER OF (X) THE PURCHASEPRICE THEREFOR PAID BY THE BENEFICIAL OWNER, (Y) 100% OF THE PRINCIPALAMOUNT THEREOF OR (Z) THE FAIR MARKET VALUE THEREOF. THE ISSUER HAS THERIGHT TO REFUSE TO HONOUR A TRANSFER OF AN INTEREST IN THE NOTESREPRESENTED HEREBY TO A U.S. PERSON WHO IS NOT A QIB AND A QP. THE ISSUER HASNOT BEEN AND WILL NOT BE REGISTERED UNDER THE INVESTMENT COMPANY ACT.

BY ITS PURCHASE AND HOLDING OF THIS NOTE (OR ANY BENEFICIAL INTERESTTHEREIN), EACH PURCHASER AND EACH TRANSFEREE WILL BE DEEMED TO HAVEREPRESENTED AND AGREED, THAT (A) EITHER THAT (1) IT IS NOT AND FOR AS LONG ASIT HOLDS THE NOTE (OR ANY BENEFICIAL INTEREST THEREIN) WILL NOT BE, AND ISNOT ACTING ON BEHALF OF (AND FOR AS LONG AS IT HOLDS THE NOTE ORBENEFICIAL INTEREST THEREIN WILL NOT BE ACTING ON BEHALF OF), AN“EMPLOYEE BENEFIT PLAN” AS DEFINED IN SECTION 3(3) OF THE U.S. EMPLOYEERETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED (“ERISA”) THAT ISSUBJECT TO THE PROVISIONS OF PART 4 OF SUBTITLE B OF TITLE I OF ERISA, OR A“PLAN” AS DEFINED IN AND SUBJECT TO SECTION 4975 OF THE U.S. INTERNAL REVENUECODE OF 1986, AS AMENDED (THE “CODE”), AN ENTITY WHOSE UNDERLYING ASSETSARE DEEMED FOR PURPOSES OF SECTION 406 OF ERISA OR SECTION 4975 OF THE CODETO INCLUDE “PLAN ASSETS” BY REASON OF SUCH EMPLOYEE BENEFIT PLAN’S ORPLAN’S INVESTMENT IN THE ENTITY, OR ANY GOVERNMENTAL, CHURCH OR NON-U.S.PLAN SUBJECT TO ANY U.S. FEDERAL, STATE, LOCAL OR NON-U.S. LAW THAT ISSUBSTANTIALLY SIMILAR TO THE PROVISIONS OF SECTION 406 OF ERISA OR SECTION4975 OF THE CODE (“SIMILAR LAW”), OR (2) ITS PURCHASE, HOLDING AND DISPOSITIONOF THIS NOTE (OR ANY BENEFICIAL INTEREST THEREIN) DOES NOT AND WILL NOTCONSTITUTE OR RESULT IN A NON-EXEMPT PROHIBITED TRANSACTION UNDER ERISAOR SECTION 4975 OF THE CODE (OR IN THE CASE OF A GOVERNMENTAL, CHURCH ORNON-U.S. PLAN, A VIOLATION OF ANY SIMILAR LAW), AND (B) IT AGREES NOT TO SELLOR OTHERWISE TRANSFER ANY INTEREST IN THE NOTES OTHERWISE THAN TO ANACQUIRER OR TRANSFEREE THAT IS DEEMED TO MAKE THESE SAMEREPRESENTATIONS AND AGREEMENTS WITH RESPECT TO ITS PURCHASE, HOLDINGAND DISPOSITION OF THE NOTES.

THE ISSUER MAY COMPEL EACH BENEFICIAL OWNER OF THE NOTES REPRESENTEDHEREBY THAT IS A U.S. PERSON WITHIN THE MEANING OF REGULATIONS TO CERTIFYPERIODICALLY THAT SUCH BENEFICIAL OWNER IS A QIB AND A QP.

It acknowledges that the Issuer, the Initial Purchasers and their respective affiliates, and others, will rely uponthe truth and accuracy of the above acknowledgements, representations and agreements and agrees that, ifany of the acknowledgements, representations or agreements deemed to have been made by it by its purchaseof Rule 144A Notes is no longer accurate, it shall promptly notify the Issuer and the Initial Purchasers. If itis acquiring any Note as a fiduciary or agent for one or more investor accounts, it represents that it has soleinvestment discretion with respect to each such account and that it has full power to make the aboveacknowledgements, representations and agreements on behalf of each account.

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It understands that Rule 144A Notes of a Series will be represented by interests in one or more Rule 144AGlobal Note Certificates. Before any interest in a Rule 144A Global Note Certificate may be offered, sold,pledged or otherwise transferred to a person who takes delivery in the form of an interest in a Regulation SGlobal Note Certificate, it will be required to provide a Transfer Agent with a written certification (in theform provided in the Fiscal Agency Agreement) as to compliance with applicable securities laws.

Prospective purchasers are hereby notified that sellers of the Rule 144A Notes may be relying on theexemption from the provisions of Section 5 of the Securities Act provided by Rule 144A.

Regulation S Notes

Each purchaser of a beneficial interest in the Regulation S Notes and each subsequent purchaser ofRegulation S Notes, by accepting delivery of this Offering Memorandum and the Regulation S Notes, willbe deemed to have represented, agreed and acknowledged that:

(1) If you are a purchaser in a sale that occurs outside the United States within the meaning ofRegulation S, you acknowledge that until the expiration of the “40-day distribution complianceperiod” within the meaning of Rule 903 of Regulation S, any offer or sale of the Notes shallnot be made by you to a U.S. person or for the account or benefit of a U.S. person within themeaning of Rule 902 under the Securities Act.

(2) If you purchase the Notes, you will also be deemed to acknowledge that the foregoingrestrictions apply to holders of beneficial interests in the Notes as well as to holders of theNotes.

(3) You acknowledge that the registrar will not be required to accept for registration of transfer anyNotes acquired by you, except upon presentation of evidence satisfactory to the Bank and theregistrar that the restrictions set forth herein have been complied with.

(4) You acknowledge that:

(a) the Bank, the Initial Purchasers and others will rely upon the truth and accuracy of youracknowledgements, representations and agreements set forth herein and you agree thatif any of your acknowledgements, representations or agreements herein cease to beaccurate and complete, you will notify the Bank and the Initial Purchasers promptly inwriting; and

(b) if you are acquiring any Notes as fiduciary or agent for one or more investor accounts,you represent with respect to each such account that:

(i) you have sole investment discretion; and

(ii) you have full power to make the foregoing acknowledgements, representationsand agreements on behalf of each such account and that each such investmentaccount is eligible to purchase the Notes.

(5) You agree that you will give to each person to whom you transfer the Notes notice of anyrestrictions on the transfer of the Notes.

(6) You understand that no action has been taken in any jurisdiction (including the United States)by the Bank or the Initial Purchasers that would permit a public offering of the Notes or thepossession, circulation or distribution of this Offering Memorandum or any other materialrelating to the Bank or the Notes in any jurisdiction where action for that purpose is required.Consequently, any transfer of the Notes will be subject to the selling restrictions set forth under“Transfer Restrictions” and “Selling Restrictions.”

(7) You represent and agree that, (a) either, (1) you are not and for as long as you hold the Note(or any beneficial interest therein) will not be, and you are not acting on behalf of (and for aslong as you hold the note or beneficial interest therein will not be acting on behalf of), an“employee benefit plan” as defined in section 3(3) of the U.S. Employee Retirement Income

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Security Act of 1974, as amended (“ERISA”) that is subject to the provisions of part 4 ofSubtitle B of Title I of ERISA, or a “Plan” as defined in and subject to section 4975 of the U.S.Internal Revenue Code of 1986, as amended (the “Code”), an entity whose underlying assetsare deemed for purposes of Section 406 of ERISA or Section 4975 of the Code to include “planassets” by reason of such employee benefit plan’s or plan’s investment in the entity, or anygovernmental, church or non-U.S. plan subject to any U.S. federal, state, local or non-U.S. lawthat is substantially similar to the provisions of section 406 of ERISA or Section 4975 of theCode (“Similar Law”), or (2) your purchase, holding and disposition of this note (or anybeneficial interest therein) does not and will not constitute or result in a non-exempt prohibitedtransaction under ERISA or Section 4975 of the Code (or in the case of a governmental, churchor non-U.S. plan, a violation of any Similar Law), and (b) you agree not to sell or otherwisetransfer any interest in the Notes otherwise than to an acquirer or transferee that is deemed tomake these same representations and agreements with respect to its purchase, holding anddisposition of the Notes.

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LEGAL MATTERS

The validity of the Notes and certain other matters relating to the issuance of the Notes will be passed uponfor the Bank by Clifford Chance LLP, as to matters of English and U.S law, and by Yegin Avukatlık Bürosuas to matters of Turkish law. Certain matters as to U.S. and English law will be passed upon for the InitialPurchasers by Allen & Overy LLP, and certain matters as to Turkish law will be passed upon for the InitialPurchasers by Paksoy Ortak Avukat Bürosu.

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GENERAL INFORMATION

Authorization

The issuance and sale of the Notes by the Issuer and the execution and delivery by the Issuer of theTransaction Documents have been authorized pursuant to the authority of the officers of the Issuer underresolution of its Board of Directors dated 15 February 2012.

Listing

Application has been made to the UK Listing Authority for the Notes to be admitted to listing on the OfficialList and to the London Stock Exchange for the Notes to be admitted to trading on the London StockExchange’s Regulated Market. It is expected that admission to the Official List and to trading on the LondonStock Exchange’s Regulated Market will be granted on or about 20 April 2012, subject only to the issue ofthe Notes. Prior to official listing, dealings will be permitted by the London Stock Exchange in accordancewith its rules.

Clearing Systems

The Unrestricted Global Certificate has been accepted for clearance through Euroclear and Clearstream,Luxembourg (ISIN XS0774764152 and Common Code 077476415). Application has been made foracceptance of the Restricted Global Certificate into DTC’s book-entry settlement system (ISINUS30214YAD67 and CUSIP 30214YAD6).

Significant or Material Adverse Change

There has been no material adverse change in the prospects of the Issuer since 31 December 2011, being theend of the last financial period for which the Issuer’s IFRS Financial Statements have been published, andthere has been no significant change in the financial or trading position of the Issuer since 31 December2011, being the end of the last financial period for which the Issuer’s IFRS Financial Statements have beenpublished.

Interests of Natural and Legal Persons Involved in the Issue

So far as the Issuer is aware, no person involved in the offer of the Notes has an interest material to the offer.

Independent Accountants

The annual financial statements of Türkiye İhracat Kredi Bankası A.Ş. (Export Credit Bank of Turkey, Inc.)as at and for the years ended December 31, 2011, 2010 and 2009 included in this Offering Memorandum,have been audited by Başaran Nas Bağımsız Denetim ve Serbest Muhasebeci Mali Müşavirlik AnonimŞirketi (“PwC”), a member of PricewaterhouseCoopers, independent accountants, as stated in their auditoŕsreports appearing herein.

PwC is an institution authorized by the BRSA to conduct independent audits of banks in Turkey and is amember of the Union of Certified Public Accountants and Sworn-In Certified Public Accountants in Turkey.

Litigation

Save as disclosed in this Offering Memorandum (see “Business—Legal Proceedings” on page 94) there areno governmental, legal or arbitration proceedings (including any such proceedings which are pending orthreatened of which the Bank is aware), which may have, or have had, during the 12 months prior to the dateof this Offering Memorandum, a significant effect on the Issuer’s financial position.

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Material Contracts

Save as disclosed in this Offering Memorandum under “Business”, the Bank has not entered into anymaterial contract outside the ordinary course of its business, which could result in the Bank being under anobligation or entitlement that is material to its ability to meet its obligations in respect of the Notes.

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ANNEX A:

SUMMARY OF DIFFERENCES BETWEEN IFRS AND BRSA ACCOUNTING PRINCIPLES

Certain financial information contained in this Offering Memorandum, and in particular “SummaryFinancial Information”, “Selected Financial Information”, “Selected Statistical and Other Information” and“Business”, is presented in accordance with the BRSA principles (see “Presentation of Financial and OtherInformation”).

Certain differences between the BRSA principles and IFRS are described below. The following discussiondoes not attempt to completely describe these differences. In addition, the following discussion does notattempt to identify possible future differences between the BRSA principles and IFRS that could result fromconceivable, planned or announced changes to BRSA or IFRS.

This Offering Memorandum does not contain financial statements of the Issuer in accordance with BRSA,nor does this Offering Memorandum contain a reconciliation of the financials statements of the Issuer toIFRS.

Differences between BRSA principles and IFRS primarily relate to format of presentation of financialstatements, disclosure requirements (e.g. IFRS 7) and accounting policies. BRSA format and disclosurerequirements are prescribed by relevant regulations and do not always meet IFRS or IAS 34 standards.Among the differences in accounting policies some of the most important to the Bank are:

• Specific provisioning for loan losses. The BRSA provisioning for loan losses is different from the IAS39 and is based on minimum percentages relating to number of days overdue prescribed by relevantregulations, whereas the IFRS provisioning for loan losses is based on the present value of future cashflows discounted at original effective interest rates.

• General loan loss provisioning. This is required under BRSA principles but prohibited under IFRS.Instead, IFRS require portfolio/collective provisioning for groups of loans and receivables sharingsimilar characteristics and not individually identified as impaired. Moreover, the BRSA genericprovisioning is based on minimum percentages defined in regulations for many asset classes (both on-balance and off-balance sheet), not only for loans, which is not the case with IFRS.

• Assets held for sale. Definition and accounting treatment according to BRSA principles are differentfrom those under IFRS (based on regulations prescribed by the BRSA). Under the BRSA principlesdepreciation of assets held for sale is taken into account, whereas pursuant to IFRS it is carried at fairvalue.

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INDEX TO FINANCIAL STATEMENTS

FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2011

Independent Auditor’s Report ...................................................................................................... F-3Balance Sheet................................................................................................................................ F-5Income Statement.......................................................................................................................... F-6Statement of Comprehensive Income .......................................................................................... F-7Statement of Cash Flows .............................................................................................................. F-8Statement of Changes in Equity .................................................................................................. F-9Notes to Financial Statements ...................................................................................................... F-10





F-1

F-2

Level: 4 – From: 0 – Tuesday, April 3, 2012 – 15:17 – eprint3 – 4409 Section 10a

TÜRKİYE İHRACAT KREDİ BANKASI A.Ş. FINANCIAL STATEMENTS AT 31 DECEMBER 2011 TOGETHER WITH INDEPENDENT AUDITOR’S REPORT

F-3


INDEPENDENT AUDITOR’S REPORT

To the Board of Directors ofTürkiye İhracat Kredi Bankası A.Ş.

1. We have audited the accompanying financial statements of Türkiye İhracat Kredi Bankası A.Ş. (“theBank”) which comprise the balance sheet as of 31 December 2011 and the income statement,statement of comprehensive income, statement of changes in equity and cash flow statement for theyear then ended and a summary of significant accounting policies and other explanatory information.

Management’s responsibility for the financial statements

2. Management is responsible for the preparation and fair presentation of these financial statements inaccordance with International Financial Reporting Standards and for such internal control asmanagement determines is necessary to enable the preparation of financial statements that are freefrom material misstatement, whether due to fraud or error.

Auditor’s responsibility

3. Our responsibility is to express an opinion on these financial statements based on our audit. Weconducted our audit in accordance with International Standards on Auditing. Those Standards requirethat we comply with ethical requirements and plan and perform the audit to obtain reasonableassurance whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosuresin the financial statements. The procedures selected depend on the auditor’s judgment, including theassessment of the risks of material misstatement of the financial statements, whether due to fraud orerror. In making those risk assessments, the auditor considers internal control relevant to the entity’spreparation and fair presentation of the financial statements in order to design audit procedures thatare appropriate in the circumstances, but not for the purpose of expressing an opinion on theeffectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness ofaccounting policies used and the reasonableness of accounting estimates made by management, aswell as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basisfor our audit opinion.

Opinion

4. In our opinion, the accompanying financial statements present fairly, in all material respects, thefinancial position of Türkiye İhracat Kredi Bankası A.Ş. as of 31 December 2011 and its financialperformance and its cash flows for the year then ended in accordance with International FinancialReporting Standards.

Başaran Nas Bağımsız Denetim ve Serbest Muhasebeci Mali Müşavirlik A.Ş.a member ofPricewaterhouseCoopers

Haluk Yalçın, SMMM

Istanbul, 30 March 2012

F-4


TÜRKİYE İHRACAT KREDİ BANKASI A.Ş. FINANCIAL STATEMENTS AT 31 DECEMBER 2011 Note Page Note Page

Balance sheet F-5Income statement F-6Statement of comprehensive income F-7Statement of cash flows F-8Statement of changes in equity F-9Notes to the financial statements: F-10-F-60

1 General information F-102 Significant accounting policies

(a) Basis of presentation of financial F-10-F-13statements

(b) Accounting for the effect of F-13-F-14hyperinflation

(c) Derivative financial instruments F-15(d) Investment securities F-15(e) Trading securities F-16(f) Income and expense recognition F-16(g) Loans and advances to customers,

provision for loan impairment andcash guarantees F-17

(h) Financial liabilities F-17(i) Foreign exchange transactions F-17(j) Property and equipment F-17-F-18(k) Intangible assets F-18(l) Taxation on income F-18(m) Employment benefits F-18(n) Provisions F-18-F-19(o) Offsetting F-19(p) Other credit related commitments F-19(q) Reporting of cash flows F-19(r) Related parties F-19(s) Comparatives F-19

3 Financial risk management(a) Strategy in using financial

instruments F-19-F-20(b) Credit risk F-20-F-26(c) Market risk F-27(d) Currency risk F-28-F-29(e) Interest rate risk F-30-F-32(f) Liquidity risk F-32-F-36(g) Fair value of financial instruments F-36-F-38(h) Capital management F-38-F-39

4 Critical accounting estimates andjudgments in applying accountingpolicies(a) Impairment losses on loans and

advances to customers F-39(b) Fair value of derivatives F-40

5 Cash and due from banks F-406 Trading securities F-417 Derivative financial instruments F-41-F-428 Loans and advances to customers F-43-F-449 Investment securities F-44-F-4510 Property and equipment F-4611 Intangible assets F-4712 Other assets F-4713 Funds borrowed F-48-F-4914 Taxation F-4915 Other liabilities F-49-F-5116 Retirement benefit obligations F-51-F-5217 Share capital F-5218 Retained earnings and reserves F-5319 Net interest income F-5320 Other operating income F-5321 Operating expenses F-5422 Commitments and contingent liabilities F-54-F-5723 Segment analysis F-57-F-5924 Related parties F-59-F-6025 Subsequent events F-60

F-5


TÜRKİYE İHRACAT KREDİ BANKASI A.Ş.

BALANCE SHEET AT 31 DECEMBER (Amounts expressed in thousands of Turkish Lira (“TL”), unless otherwise indicated.) Notes 2011 2010 ASSETS Cash and due from banks 5 667,369 886,771 Trading securities 6 342,935 308,488 Derivative financial instruments 7 15,895 1,885 Loans and advances to customers 8 7,997,214 4,106,275 Investment securities - Available-for-sale 9 11,295 15,202 - Held-to-maturity 9 511,436 891,703 Property and equipment 10 9,693 8,104 Intangible assets 11 569 390 Other assets 12 26,738 10,748 Total assets 9,583,144 6,229,566 LIABILITIES Funds borrowed 13 4,669,760 1,798,712 Debt securities in issue 13 960,419 - Interbank money market deposits 13 157,988 - Other liabilities 15 112,040 764,692 Derivative financial instruments 7 23,317 25,164 Retirement benefit obligations 16 11,560 10,856 Total liabilities 5,935,084 2,599,424 EQUITY - Share capital 17 2,000,000 2,000,000 - Adjustment to share capital 17 812,518 812,518 Total paid in share capital 2,812,518 2,812,518 Other reserves 3,630 8,582 Retained earnings 18 831,912 809,042 Total equity 3,648,060 3,630,142 Total liabilities and equity 9,583,144 6,229,566 Commitment and contingent liabilities 22 The financial statements as at and for the year ended 31 December 2011 have been approved for issue by the Board of Directors on 30 March 2012 and signed on behalf of the Bank by Necati Yeniaras, the Assistant General Manager of Coordination and; by Muhittin Akbaş, the Head of Accounting and Reporting of the Bank.

The accompanying notes form an integral part of these financial statements.

F-6


TÜRKİYE İHRACAT KREDİ BANKASI A.Ş. INCOME STATEMENT FOR THE YEARS ENDED 31 DECEMBER (Amounts expressed in thousands of Turkish Lira (“TL”), unless otherwise indicated.) 1 January - 1 January - Notes 31 December 2011 31 December 2010 Interest income 19 313,359 315,753 Interest expense 19 (48,869) (27,045) Net interest income 264,490 288,708 Fee and commission income 5,866 804 Fee and commission expense (6,081) (9,940) Net fee and commission expense (215) (9,136) Impairment charges on loans 8 (18,413) (19,389) Foreign exchange gains, net 162,498 23,875 Losses on financial instruments classified as held for trading, net (124,230) (4,883) Other operating income 20 53,403 42,466 Operating profit before operating expenses 337,533 321,641 Operating expenses 21 (107,255) (65,171) Net profit for the year 230,278 256,470


F-7


TÜRKİYE İHRACAT KREDİ BANKASI A.Ş. STATEMENT OF COMPREHENSIVE INCOME FOR THE YEARS ENDED 31 DECEMBER (Amounts expressed in thousands of Turkish Lira (“TL”), unless otherwise indicated.) 1 January - 1 January - 31 December 2011 31 December 2010

Net profit for the year 230,278 256,470 Other comprehensive income Change in fair value of available-for-sale financial assets (4,907) 1,458 Amortisation of the fair value gains of held to maturity investments previously classified as available-for-sale financial assets (45) (101) Total comprehensive income for the year 225,326 257,827


F-8


TÜRKİYE İHRACAT KREDİ BANKASI A.Ş. STATEMENT OF CASH FLOWS FOR THE YEARS ENDED 31 DECEMBER (Amounts expressed in thousands of Turkish Lira (“TL”), unless otherwise indicated.) Notes 2011 2010 Cash flows from operating activities: Net profit for the year 230,278 256,470 Adjustments for: Depreciation and amortisation 21 1,027 676 Provision for loan losses 8 18,413 22,172 Provision for employment termination benefits 16 704 (893) Provision for unused vacation 15 1,968 840 Remeasurement of derivative financial instruments at fair value (15,857) 34,539 Interest income, net (264,490) (288,708) Other non-cash items (10,938) 9,921 Operating profit before changes in operating assets and liabilities (38,895) 35,017 Net increase/(decrease) in due from banks 26,300 (16,000) Net increase in loans and advances to customers (3,893,100) (252,636) Net increase in trading securities (34,447) (141,991) Net (increase)/decrease in other assets (15,990) 4,130 Net decrease in other liabilities (656,439) (4,731) Interest expense paid (45,890) (34,889) Interest income received 294,420 309,864 Net cash used in operating activities (4,364,041) (101,236) Cash flows from/(used in) investing activities: Purchases of property and equipment, net 10,11 (2,795) (73) Purchases of available-for-sale financial assets (2,716) - Purchases of investment securities 9 (242,578) (1,115,881) Redemption of investment securities 9 639,199 537,579 Net cash from/(used in) investing activities 391,110 (578,375) Cash flows from/(used in) financing activities: Proceeds from borrowings 7,870,402 2,491,973 Repayment of borrowings (4,999,354) (2,711,472) Proceeds from interbank money market deposit 157,988 - Proceeds from issuance of debt securities 960,419 - Dividends paid (207,408) (284,888) Net cash from/(used in) financing activities 3,782,047 (504,387) Effects of exchange-rate changes on cash and cash equivalents (2,674) (4,676) Net decrease in cash and cash equivalents (193,558) (1,188,674) Cash and cash equivalents at the beginning of the year 860,471 2,049,145 Cash and cash equivalents at the end of the year 5 666,913 860,471 The accompanying notes form an integral part of these financial statements.

F-9


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F-10


TÜRKİYE İHRACAT KREDİ BANKASI A.Ş. NOTES TO THE FINANCIAL STATEMENTS AT 31 DECEMBER 2011 (Amounts expressed in thousands of Turkish Lira (“TL”), unless otherwise indicated.) NOTE 1 - GENERAL INFORMATION Türkiye İhracat Kredi Bankası A.Ş. (“the Bank” or “Eximbank”) was established as Turkey’s “Official Export Credit Agency” on 25 March 1987 (transformed from “State Investment Bank”) as a development and investment bank and accordingly, the Bank does not accept deposits. The Bank’s head office is located at Müdafaa Caddesi, 20 Bakanlıklar, Ankara/Turkey. As of 31 December 2011, the Bank has 2 branches in Istanbul and Izmir and 6 liaison offices in Bursa, Adana, Trabzon, Denizli, Kayseri and Gaziantep. As of 31 December 2011, the Bank employed 397 people (2010: 360 people). The Bank has been mandated to support foreign trade through diversification of the exported goods and services, by increasing the share of exporters and entrepreneurs in international trade, and to create new markets for the exported commodities, to provide exporters and overseas contractors with support to increase their competitiveness and to ensure a lower risk environment in international markets. As a means of aiding export development services, the Bank provides loan, guarantee and insurance services in order to financially support export and foreign currency earning services. While performing the above mentioned operations, the Bank provides short, medium or long term, domestic and foreign currency lending funded by borrowings from domestic and foreign money and capital markets and from its own sources. On the other hand, the Bank also performs fund management (treasury) operations related to its core banking operations. These operations are domestic and foreign currency capital market operations, domestic and foreign currency money market operations, foreign currency market operations, derivative transactions, all of which are approved by the Board of Directors. The losses due to the political risks arising on loan, guarantee and insurance operations of the Bank, are transferred to the Undersecretariat of Treasury (“Turkish Treasury”) according to article 4/c of Act number 3332 that was appended by Act number 3659 and according to Act regarding the Public Financing and Debt Management, number 4749, dated 28 March 2002. NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES The principal accounting policies adopted in the preparation of these financial statements are set out below. These policies are consistently applied to all periods presented unless otherwise stated. (a) Basis of presentation of financial statements These financial statements are prepared in accordance with International Financial Reporting Standards (“IFRS”) including International Accounting Standards issued by the International Accounting Standards Board (“IASB”) and Interpretations issued by the International Financial Reporting Standards Interpretation Committee (“IFRSIC”). The Bank maintains its books of accounts and prepares its statutory financial statements in Turkish Lira in accordance with the Banking Law and in accordance with the “Regulation on Accounting Applications for Banks and Safeguarding of Documents” published in the Official Gazette No.2663 dated 1 November 2006, which refers to Turkish Accounting Standards (“TAS”) and Turkish Financial Reporting Standards (“TFRS”) issued by the Turkish Accounting Standards Board (“TASB”) and additional explanations and notes related to them and the accounting principles promulgated by the Banking Regulation and Supervision Agency (“BRSA”) and other relevant rules promulgated by the Turkish Commercial Code and Tax Regulations. These financial statements are based on the historical cost convention and adjusted as necessary in order to comply with IFRS issued by the IASB.

F-11


TÜRKİYE İHRACAT KREDİ BANKASI A.Ş. NOTES TO THE FINANCIAL STATEMENTS AT 31 DECEMBER 2011 (Amounts expressed in thousands of Turkish Lira (“TL”), unless otherwise indicated.) NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (Continued) The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Bank’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed in Note 4. Standards, amendments and interpretations effective on or after 1 January 2011 The following amendments to published standards and interpretations to existing standards, effective on or after 1 January 2011, are relevant to the Bank’s operations. IAS 24 (revised), “Related party disclosures”, is effective for annual periods beginning on or after 1 January 2011. The revised standard removes the requirement for government-related entities to disclose details of all transactions with the government and other government-related entities. It also clarifies and simplifies the definition of a related party. Earlier adoption is permitted either for the entire standard or for the reduced disclosures for government-related entities. The Bank chose not to apply the exemption from disclosing individually immaterial related party transactions with government related entities in IAS 24 (revised). Standards, amendments and interpretations effective on or after 1 January 2011 and not relevant to financial statements of the Bank; IAS 32 (amendment), “Financial instruments: Presentation”, is effective for annual periods beginning on or after 1 February 2010. The amendment recognizes that the previous requirement to classify foreign-currency-denominated rights issued to all existing shareholders on a pro rata basis as derivative liabilities is not consistent with the substance of the transaction, which represents a transaction with owners acting in their capacity as such. The amendment therefore creates an exception to the ‘fixed for fixed’ rule in IAS 32 and requires rights issues within the scope of the amendment to be classified as equity. The amendment is applied retrospectively. IFRIC 19, “Extinguishing financial liabilities with equity instruments”, is effective for annual periods beginning on or after 1 July 2010. IFRIC 19 clarifies the accounting when an entity renegotiates the terms of its debt with the result that the liability is extinguished by the debtor issuing its own equity instruments to the creditor (referred to as a ‘debt for equity swap’). The interpretation is applied retrospectively from the beginning of the earliest comparative period presented, as adoption in earlier periods would result only in a reclassification of amounts within equity. IFRS 1 (amendment), “First-time adoption of IFRS”, is effective for annual periods beginning on or after 1 July 2010. The amendment provides the same relief to first-time adopters as was given to current users of IFRSs upon adoption of the amendments to IFRS 7. Also clarifies the transition provisions of the amendments to IFRS 7. Early adoption is required for a first-time adopter that has a first reporting period that begins earlier than 1 July 2010 in order to benefit from the disclosure relief. IFRIC 14 (amendment), “IAS 19 - The limit on a defined benefit asset, minimum funding requirements and their interaction”, is effective for annual periods beginning on or after 1 January 2011. The amendment removes unintended consequences arising from the treatment of pre-payments where there is a minimum funding requirement. The amendment also results in pre-payments of contributions in certain circumstances being recognised as an asset rather than an expense. It was applied from the beginning of the earliest comparative period presented. Annual Improvements to IFRSs 2010. Amendments effect six standards and one IFRIC: IFRS 1, IFRS 3, IFRS 7, IAS 27, IAS 34 and IFRIC 13.

F-12


TÜRKİYE İHRACAT KREDİ BANKASI A.Ş. NOTES TO THE FINANCIAL STATEMENTS AT 31 DECEMBER 2011 (Amounts expressed in thousands of Turkish Lira (“TL”), unless otherwise indicated.) NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (Continued) Standards, amendments and interpretations to existing standards issued but not yet effective for the financial year beginning 1 January 2011 and have not been early adopted IFRS 7 (amendment), “Financial instruments: Disclosures”, is effective for annual periods beginning on or after 1 July 2011. This amendment will promote transparency in the reporting of transfer transactions and improve users’ understanding of the risk exposures relating to transfers of financial assets and the effect of those risks on an entity’s financial position, particularly those involving securitisation of financial assets. Comparative information is not needed in the first year of adoption. Earlier adoption is permitted. The amendment is not relevant to the operations of the Bank. IFRS 1 (amendment), “First-time adoption of IFRS”, is effective for annual periods beginning on or after 1 July 2011. These amendments include two changes to IFRS 1. The first replaces references to a fixed date of 1 January 2004 with ‘the date of transition to IFRSs’, thus eliminating the need for entities adopting IFRSs for the first time to restate derecognition transactions that occurred before the date of transition to IFRSs. The second amendment provides guidance on how an entity should resume presenting financial statements in accordance with IFRSs after a period when the entity was unable to comply with IFRSs because its functional currency was subject to severe hyperinflation. Earlier adoption is permitted. The amendment is not relevant to the operations of the Bank. IAS 12 (amendment), “Income taxes”, is effective for annual periods beginning on or after 1 January 2012. This amendment introduces an exception to the existing principle for the measurement of deferred tax assets or liabilities arising on investment property measured at fair value. As a result of the amendments, SIC 21, “Income taxes - recovery of revalued non-depreciable assets”, will no longer apply to investment properties carried at fair value. The amendments also incorporate into IAS 12 the remaining guidance previously contained in SIC 21, which is withdrawn. Early adoption is permitted. The amendment is not relevant to the operations of the Bank. IAS 1 (amendment), “Presentation of financial statements”, is effective for annual periods beginning on or after 1 July 2012. The main change resulting from these amendments is a requirement for entities to group items presented in ‘other comprehensive income’ (OCI) on the basis of whether they are potentially reclassifiable to profit or loss subsequently (reclassification adjustments). The amendments do not address which items are presented in OCI. Early adoption is permitted. The amendment does not have a material impact on the financial statements of the Bank. IAS 19 (amendment), “Employee benefits”, is effective for annual periods beginning on or after 1 January 2013. These amendments eliminate the corridor approach and calculate finance costs on a net funding basis. Early adoption is permitted. The amendment is not relevant to the operations of the Bank. IFRS 9, “Financial instruments”, is effective for annual periods beginning on or after 1 January 2015. The standard addresses the classification, measurement and recognition of financial assets and financial liabilities. IFRS 9 was issued in November 2009 and amended in October 2010. It replaces the parts of IAS 39 that relate to the classification and measurement of financial instruments. IFRS 9 requires financial assets to be classified into two measurement categories: those measured as at fair value and those measured at amortised cost. The determination is made at initial recognition. The classification depends on the entity’s business model for managing its financial instruments and the contractual cash flow characteristics of the instrument. For financial liabilities, the standard retains most of the IAS 39 requirements. The main change is that, in cases where the fair value option is taken for financial liabilities, the part of a fair value change due to an entity’s own credit risk is recorded in other comprehensive income rather than the income statement, unless this creates an accounting mismatch. The Bank is yet to assess IFRS 9’s full impact and intends to adopt IFRS 9 at the accounting period beginning on or after 1 January 2015.

F-13


TÜRKİYE İHRACAT KREDİ BANKASI A.Ş. NOTES TO THE FINANCIAL STATEMENTS AT 31 DECEMBER 2011 (Amounts expressed in thousands of Turkish Lira (“TL”), unless otherwise indicated.) NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (Continued) IFRS 10, “Consolidated financial statements”, is effective for annual periods beginning on or after 1 January 2013. The standard builds on existing principles by identifying the concept of control as the determining factor in whether an entity should be included within the consolidated financial statements of the parent company. The standard provides additional guidance to assist in the determination of control where this is difficult to assess. The new standard is not relevant to the operations of the Bank. IFRS 11, “Joint arrangements”, is effective for annual periods beginning on or after 1 January 2013. IFRS 11 is a more realistic reflection of joint arrangements by focusing on the rights and obligations of the arrangement rather than its legal form. There are two types of joint arrangement: joint operations and joint ventures. Joint operations arise where a joint operator has rights to the assets and obligations relating to the arrangement and hence accounts for its interest in assets, liabilities, revenue and expenses. Joint ventures arise where the joint operator has rights to the net assets of the arrangement and hence equity accounts for its interest. Proportional consolidation of joint ventures is no longer allowed. The new standard is not relevant to the operations of the Bank. IFRS 12, “Disclosures of interests in other entities”, is effective for annual periods beginning on or after 1 January 2013. The standard includes the disclosure requirements for all forms of interests in other entities, including joint arrangements, associates, special purpose vehicles and other off balance sheet vehicles. The IFRS 12 does not have a material impact on the financial statements of the Bank. IFRS 13, “Fair value measurement”, is effective for annual periods beginning on or after 1 January 2013. The standard aims to improve consistency and reduce complexity by providing a precise definition of fair value and a single source of fair value measurement and disclosure requirements for use across IFRSs. The IFRS 13 does not have a material impact on the financial statements of the Bank. IAS 27 (revised), “Separate financial statements”, is effective for annual periods beginning on or after 1 January 2013. The standard includes the provisions on separate financial statements that are left after the control provisions of IAS 27 have been included in the new IFRS 10. The amendment is not relevant to the operations of the Bank. IAS 28 (revised), “Associates and joint ventures”, is effective for annual periods beginning on or after 1 January 2013. The standard includes the requirements for joint ventures, as well as associates, to be equity accounted following the issue of IFRS 11. The amendment is not relevant to the operations of the Bank. IFRIC 20, Stripping costs in the production phase of a surface mine. The interpretation is not relevant to the operations of the Bank. (b) Accounting for the effect of hyperinflation Prior to 1 January 2006, the adjustments and reclassifications made to the statutory records for the purpose of fair presentation in accordance with IFRS included the restatement of balances and transactions for the changes in the general purchasing power of the Turkish Lira in accordance with IAS 29 “Financial Reporting in Hyperinflationary Economies”. IAS 29 requires that the financial statements prepared in the currency of a hyperinflationary economy be stated in terms of the measuring unit current at the balance sheet date. As the characteristics of the economic environment of Turkey indicate that hyperinflation has ceased, effective from 1 January 2006, the Bank no longer

F-14


TÜRKİYE İHRACAT KREDİ BANKASI A.Ş. NOTES TO THE FINANCIAL STATEMENTS AT 31 DECEMBER 2011 (Amounts expressed in thousands of Turkish Lira (“TL”), unless otherwise indicated.) applies the provisions of IAS 29. Accordingly, the amounts expressed in the measuring unit current at 31 December 2005 are treated as the basis for the carrying amounts in these financial statements.

F-15


TÜRKİYE İHRACAT KREDİ BANKASI A.Ş. NOTES TO THE FINANCIAL STATEMENTS AT 31 DECEMBER 2011 (Amounts expressed in thousands of Turkish Lira (“TL”), unless otherwise indicated.) NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (Continued) (c) Derivative financial instruments Derivative financial instruments, including currency and interest rate swap instruments, are initially recognised in the balance sheet at their fair value evidenced by their cost and are subsequently remeasured at their fair value. All derivative financial instruments are classified as held for trading. Cross currency swap transactions, while providing effective economic hedges under the Bank’s risk management position, do not qualify for hedge accounting under the specific rules in IAS 39 “Financial Instruments: Recognition and Measurement”, and are therefore treated as derivatives held for trading with fair value gains and losses reported in income. Fair values are obtained from quoted market prices and discounted cash flow models as appropriate. Fair value of over-the-counter (“OTC”) forward or swap foreign exchange contracts is determined based on the comparison of the original forward rate with the market interest rates. All derivatives are carried as assets when the fair value is positive and as liabilities when the fair value is negative. (d) Investment securities Investment securities are classified into the following two categories: held-to-maturity and available-for-sale assets. Investment securities with fixed maturity where management has both the intent and the ability to hold to maturity are classified as held-to-maturity. Investment securities intended to be held for an indefinite period of time, which may be sold in response to needs for liquidity or changes in interest rates, exchange rates or equity prices, are classified as available-for-sale. Management determines the appropriate classification of its investments at the time of the purchase. Investment securities are initially recognized at fair value plus transaction costs that are directly attributable to the acquisition of the investment securities. Available-for-sale investment debt and equity securities are subsequently remeasured at fair value based on quoted bid prices, or amounts derived from discounted cash flow models. Unrealized gains and losses arising from changes in the fair value of securities classified as available-for-sale are recognised in other comprehensive income, unless there is objective evidence that the asset is impaired. Impairment losses recognised in the income statement on equity instruments are not reversed through the income statement. Equity securities for which fair values cannot be measured reliably are recognised at cost less impairment. When the securities are disposed of or impaired, the related accumulated fair value adjustments are transferred from other comprehensive income to the income statement. Held-to-maturity investments are carried at amortised cost using the effective interest rate method, less any provision for impairment. Interest earned whilst holding investment securities is reported as interest income. Dividends receivable is included separately in dividend income when a dividend is declared and inflow of economic benefit is probable. All purchases and sales of investment securities that require delivery with the time frame established by regulation or market convention (“regular way” purchases and sales) are recognised at the settlement date, which is the date that the asset is delivered to/from the Bank.

F-16


TÜRKİYE İHRACAT KREDİ BANKASI A.Ş. NOTES TO THE FINANCIAL STATEMENTS AT 31 DECEMBER 2011 (Amounts expressed in thousands of Turkish Lira (“TL”), unless otherwise indicated.) NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (Continued) (e) Trading securities Trading securities are securities which were either acquired for generating a profit from short-term fluctuations in price or dealer’s margin, or are securities included in a portfolio in which a pattern of short-term profit making exists. These are initially recognised at fair value; transaction costs are taken directly to the income statement and subsequently they are re-measured at fair value based on quoted bid prices or amounts derived from discounted cash flow models. All related realized and unrealized gains and losses are included in net trading income. Dividends received are included in dividend income. All regular way purchases and sales of trading financial assets are recognised at the settlement date. (f) Income and expense recognition Income and expenses are recognised on an accrual basis. Fee and commission income Commission income and fees for certain banking services such as import and export related services and issuance of letters of guarantee are recorded as income overtime as the service is provided. Fees received for guarantees are recognized over the guaranteed period. Dividend income Dividends are recognized in the income statement in “Dividend income” when the entity’s right to receive payment is established. Interest income and expense Interest income and expense are recognised in the income statement for all interest bearing instruments on an accrual basis using the effective yield method based on the actual purchase price until, in management’s judgment, collection becomes doubtful. Interest income includes coupons earned on fixed income securities and accrued discount on treasury bills. Premium income and expense Insurance programs of the Bank are composed of two schemes: short-term export credit insurance and medium- and long-term export credit insurance. Premium income of the Bank under these two schemes represents premiums on policies written during the year, net of cancellations. In addition, since commencement of the insurance facility, the Bank has sought to reinsure the major portion (currently 70%) of its underwritten short-term commercial risks on the basis of a quota-share treaty concluded with a group of domestic and overseas reinsurance companies. Accordingly, expenses include the premiums paid to reinsurance companies. Premium income and expense representing reinsurer’s share of the premium are recognized in the financial statements on accrual basis over the period of related policy. Reinsurance commissions Reinsurance commission income received in relation to ceded premiums is recognized on an accrual basis.

F-17


TÜRKİYE İHRACAT KREDİ BANKASI A.Ş. NOTES TO THE FINANCIAL STATEMENTS AT 31 DECEMBER 2011 (Amounts expressed in thousands of Turkish Lira (“TL”), unless otherwise indicated.) NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (Continued) (g) Loans and advances to customers, provision for loan impairment and cash guarantees Loans originated by the Bank by providing money directly to the borrower or to a sub-participation agent are categorized as loans originated by the Bank and are carried at amortized cost, net of any provision for impairment losses. All originated loans are recognised when cash is advanced to borrowers. Cash guarantees received for loans and advances given are recorded under “other liabilities” upon receipt and repaid back to the borrower on the maturity date when the Bank collects all amounts due. A provision for loan impairment is established if there is objective evidence that the Bank will not be able to collect all amounts due. The amount of the provision is the difference between the carrying amount and recoverable amount, being the present value of expected cash flows, including the amount recoverable from guarantees and collateral, discounted based on the original effective interest rate. The level of the provision is also based on applicable banking regulations. An additional provision for loan impairment is established to cover losses that are judged to be present in the lending portfolio at the balance sheet date, but which have not been specifically identified as such. The provision made during the year is charged against the income for the year. Loans that can not be recovered are written off against the allowance for impairment losses. Such loans are written off after all the necessary legal proceedings have been completed and the amount of the loan loss is finally determined. Recoveries of amounts previously provided for are treated as a reduction from provision for impairment losses for the year (Note 8). (h) Financial liabilities Financial liabilities, including funds borrowed from banks, debt securities in issue and interbank money market deposits received are recognized initially at fair value net of transaction costs that are directly attributable to the issue of the financial liability. Subsequently, financial liabilities are stated at amortised cost and any difference between the amount at initial recognition and the redemption value is recognised in the income statement over the period of the financial liability using the effective yield method. (i) Foreign exchange transactions Transactions denominated in foreign currencies are accounted for at the exchange rates prevailing at the date of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement. (j) Property and equipment All property and equipment are carried at historical cost less accumulated depreciation. For purchases before 31 December 2005, they are restated to the equivalent purchasing power at 31 December 2005. Depreciation is calculated using the straight-line method to write off the cost of each asset to its residual value over its estimated useful life, as follows: Buildings 50 years Equipment and vehicles 4 - 16 years

F-18


TÜRKİYE İHRACAT KREDİ BANKASI A.Ş. NOTES TO THE FINANCIAL STATEMENTS AT 31 DECEMBER 2011 (Amounts expressed in thousands of Turkish Lira (“TL”), unless otherwise indicated.) NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (Continued) Where the carrying amount of an asset is greater than its estimated recoverable amount, it is written down immediately to its recoverable amount. Gains and losses on disposal of property and equipment are determined by reference to their carrying amount and are recognized in income. Subsequent expenditures are included in the asset’s carrying amount or are recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Bank and the cost of the item can be measured reliably. All other repair and maintenance costs are changed to other operating expenses during the financial period in which they are incurred. (k) Intangible assets Acquired computer software licenses are capitalized on the basis of the costs incurred to acquire and bring to use the specific software. These costs are amortized on the basis of the expected useful lives (not exceeding a period of five years). These assets are accounted for as intangible assets in these financial statements. (l) Taxation on income According to Act number 3332 and article 4/b of Act number 3659, dated 25 March 1987 and 26 September 1990, respectively, the Bank is exempt from Corporate Tax. Due to the 3rd Article of Act number 3659, the above mentioned exemption became valid from 1 January 1988. Accordingly, deferred tax is not calculated and reflected to these financial statements. (m) Employee benefits (i) Provision for employment termination benefits Provision for employment termination benefits (“ETB”) is recognized in these financial statements as they are earned using the Projected Unit Credit Method. The total provision represents the present value of the estimated total reserve for the future probable obligation of the Bank arising from the retirement of the employees, calculated in accordance with the Turkish Labor Law (Note 16). Actuarial gains and losses are recognized immediately in the statement of income. (ii) Bonus plans The Bank recognizes a liability and an expense for employee bonuses based on a formula that takes into consideration the performance of the employees. The Bank recognizes a provision where contractually obliged or where there is a past practice that has created a constructive obligation. (n) Provisions Provisions are recognized when the Bank has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate of the amount of the obligation can be made.

F-19


TÜRKİYE İHRACAT KREDİ BANKASI A.Ş. NOTES TO THE FINANCIAL STATEMENTS AT 31 DECEMBER 2011 (Amounts expressed in thousands of Turkish Lira (“TL”), unless otherwise indicated.) NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (Continued) The Bank, in relation to its insurance business, accounts for outstanding claim provision for ultimate cost of the claims incurred, but not paid in the current or previous periods or, for the estimated ultimate cost if the cost is not certain yet, and for the incurred but not reported claims in addition to provisions calculated by taking into account the historical loss experience on insurance contracts. At each reporting period liability adequacy tests are also performed to ensure the adequacy of the contract liabilities. (o) Offsetting Financial assets and liabilities are offset and the net amount is reported in the balance sheet when there is a legally enforceable right to set off the recognised amounts and there is an intention to settle on a net basis, or to realize the asset and settle the liability simultaneously. (p) Other credit related commitments In the normal course of business, the Bank enters into other credit related commitments including loan commitments and guarantees. These are reported as off-balance sheet items at their notional amounts and are assessed using the same criteria as loans and advances; specific provisions are therefore established for other credit related commitments when losses are considered probable and recorded as other liabilities (Note 22). (q) Reporting of cash flows For the purposes of cash flow statement, cash and cash equivalents include cash, due from banks, trading securities and investment securities with original maturity periods of less than three months (Note 5). (r) Related parties For the purpose of these financial statements the shareholders of the Bank together with state-controlled entities in Turkey and the Bank’s key management personnel are considered and referred to as related parties (Note 23). (s) Comparatives Where necessary, comparative figures have been reclassified to conform to changes in presentation in the current year. NOTE 3 - FINANCIAL RISK MANAGEMENT (a) Strategy in using financial instruments As of 31 December 2011, the loan portfolio of the Bank constitutes 83% (2010: 66%) of total assets. In short, medium and long term lending (except for fund sourced and country loans), the Bank is taking the risk of the Turkish banking system, however medium-to-long term country loans are under the political risk guarantee of the Turkish Treasury.

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TÜRKİYE İHRACAT KREDİ BANKASI A.Ş. NOTES TO THE FINANCIAL STATEMENTS AT 31 DECEMBER 2011 (Amounts expressed in thousands of Turkish Lira (“TL”), unless otherwise indicated.) NOTE 3 - FINANCIAL RISK MANAGEMENT (Continued) The Board of Directors of the Bank sets risk limits and parameters for the transactions having significant implications for the operations of the Bank. The objective of the Bank’s asset and liability management and use of financial instruments is to limit the Bank’s exposure to liquidity risk, interest rate risk and foreign exchange risk, while ensuring that the Bank has sufficient capital adequacy. (b) Credit risk According to article numbered 25 of the decree (regulating the “Articles of Association” of the Bank) of the Council of Ministers dated 17 June 1987; the scope of the annual operations of the Bank is determined by the Bank’s Annual Program that is approved by Supreme Advisory and Credit Guidance Committee (“SCLGC”). SCLGC is chaired by the Prime Minister or State Minister appointed by the Prime Minister and includes executive managers. The Board of Directors of the Bank is authorized to allocate the risk limits of loan, guarantee and insurance premium to country, sector and commodity groups, within the principles set by the Annual Program. In accordance with the collateralisation policy of the Bank, the Bank is taking the risks of short term loans to domestic banks. The cash and non-cash limits of domestic banks for short term and medium and long term credits are approved by the Board of Directors. Board of Directors fulfilled authorisations for the determination of loan limits for a person or legal entity, limited with only the loans which were given with respect to specified guaranties, within the framework of the 5th item in the Regulation related with Loan Transactions. The risk limits of the foreign country loans are determined by annual programs which are approved by SCLGC within the foreign economic policy. Country loans are granted with the approval of the Board of Directors and the approval of the Minister and the Council of Ministers, according to article 10 of Act number 4749 dated 28 March 2002 related to the regulation of Public Finance and Debt Management. The fundamental collateral of the foreign country loans are the government guarantee of the counter country and the guarantee of banks that the Bank accepts as accredited. The limit of a country is restricted by both “maximum limit that can be undertaken” and “maximum amount that can be used annually”. Each year major portion of the commercial and politic risks emerged in Short Term Export Insurance Program is transferred to international reinsurance companies under renewed agreements. According to the Article 4/C of Act number 3332 that was appended by Act number 3659 and Act regarding the regulation of Public Financing and Debt Management dated 28 March 2002, the losses incurred by the Bank in its credit, guarantee and insurance transactions as a result of political risks are covered by the Turkish Treasury.

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TÜRKİYE İHRACAT KREDİ BANKASI A.Ş. NOTES TO THE FINANCIAL STATEMENTS AT 31 DECEMBER 2011 (Amounts expressed in thousands of Turkish Lira (“TL”), unless otherwise indicated.) NOTE 3 - FINANCIAL RISK MANAGEMENT (Continued) The Bank reviews reports of OECD country risk groupings, reports of the members of the International Union of Credit and Investment Insurers, reports of independent credit rating institutions and the financial statements of the banks risks of which are undertaken during the assessment and review of the loans granted. In addition, country reports and short term country risk classifications prepared within the Bank are also utilized. The risks and limits of companies and banks are followed by both loan and risk departments on a weekly and monthly basis. In addition, all of the foreign exchange denominated operations and other derivative transactions of the Bank are carried out under the limits approved by the Board of Directors. Business and geographic distribution of the loan risks runs parallel with the export composition of Turkey and this is followed up by the Bank regularly. Impairment and provisioning policies The Bank reviews its loan portfolios to assess impairment on a quarterly basis. In determining whether an impairment loss should be recorded in the income statement, the Bank makes judgments as to whether there is any observable data indicating that there is a measurable decrease in the estimated future cash flows from a portfolio of loans before the decrease can be identified with an individual loan in that portfolio. This evidence comprises observable data indicating that there has been an adverse change in the payment status of borrowers in a group, or national or local economic conditions that correlate with defaults on assets in the group. The Bank uses estimates based on historical loss experience for assets with credit risk characteristics and objective evidence of impairment similar to those in the portfolio when scheduling its future cash flows. The methodology and assumptions used for estimating both the amount and timing of future cash flows are reviewed regularly to reduce any differences between loss estimates and actual loss experience. The classification of the loan portfolio of the Bank under the following categories is as follows: 31 December 2011 31 December 2010 Corporate Personnel Corporate Personnel Loans Loans Loans Loans Neither past due nor impaired 8,040,658 2,406 3,511,096 2,591 Past due but not impaired 22,555 - 645,451 - Individually impaired 114,853 - 120,776 - 8,178,066 2,406 4,277,323 2,591

F-22


TÜRKİYE İHRACAT KREDİ BANKASI A.Ş. NOTES TO THE FINANCIAL STATEMENTS AT 31 DECEMBER 2011 (Amounts expressed in thousands of Turkish Lira (“TL”), unless otherwise indicated.) NOTE 3 - FINANCIAL RISK MANAGEMENT (Continued) As of 31 December 2011 and 2010, loans and advances that are past due but not impaired are as follows: 31 December 2011 31 December 2010 Past due up to 30 days 279 4,479 Past due 30-60 days 724 8 Past due 60-90 days - 27 Past due over one year 21,552 640,937 Total loans and advances that are past due but not impaired 22,555 645,451 In line with the mission of the Bank, the Bank grants loans only to corporate customers either directly or indirectly through banks and financial institutions and follows its credit portfolio under categories specified below: 31 December 2011 31 December 2010 Corporate Personnel Corporate Personnel Loans Loans Loans Loans Standard loans and advances (*) 7,977,924 2,406 4,152,033 2,591 Loans and advances under close monitoring (**) 85,289 - 4,514 - Impaired loans and advances 114,853 - 120,776 - Total loans and advances to customers 8,178,066 2,406 4,277,323 2,591 Allowance for impairment losses (183,258) - (173,639) - Net loans and advances to customers 7,994,808 2,406 4,103,684 2,591 (*) Standard corporate loans and advances include loans amounting to TL21,552 thousand (2010: TL640,937 thousand)

which are past due but not impaired as potential losses on those loans are transferred to Turkish Treasury (Notes 8 and 15).

(**) As of 31 December 2011, loans and advances under close monitoring includes loans amounting to TL84,286

thousand that were not past due but had been extended to customers whose other loans are under close monitoring. As of 31 December 2011 and 2010, the fair value of collaterals held for total loans and advances are as follows: 31 December 2011 31 December 2010 Corporate Personnel Corporate Personnel Loans Loans Loans Loans Loans guaranteed by other banks 4,410,551 - 1,457,180 - Loans guaranteed by Turkish Treasury 21,552 - 640,937 - Loans guaranteed by a third party - 2,406 - 2,591 Total 4,432,103 2,406 2,098,117 2,591 Unsecured exposures (*) 3,745,963 - 2,179,206 - Total loans and advances to customers 8,178,066 2,406 4,277,323 2,591 (*) Unsecured exposures represent loans and advances granted to domestic banks, foreign banks and other financial

institutions and individually impaired loans.

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TÜRKİYE İHRACAT KREDİ BANKASI A.Ş. NOTES TO THE FINANCIAL STATEMENTS AT 31 DECEMBER 2011 (Amounts expressed in thousands of Turkish Lira (“TL”), unless otherwise indicated.) NOTE 3 - FINANCIAL RISK MANAGEMENT (Continued) As of 31 December 2011, the Bank does not have repossessed collateral (2010: None). Bank’s credit rating system The risk assessment of banks and other financial institutions The Bank requests independent auditor’s report in addition to financial statements and related notes and net foreign currency position from banks and other financial institutions on a quarterly basis. Financial statement information derived from the independent audit or review reports of banks and other financial institutions is recorded into a database in a standard format and percentage changes and ratios related with the capital adequacy, asset quality, liquidity and profitability of the banks and other financial institutions are calculated. In addition, the standard ratios for capital adequacy, asset quality, liquidity and profitability ratios are redefined periodically considering the operations of the banking groups and acceptable intervals for standard ratios are defined. In accordance with the standard ratios, the financial analysis groups are defined by assigning grades from 1 to 4 to banks and other financial institutions. Group with grade 1 consists of the lowest risk profile of banks and financial institutions and group with grade 4 consists of the highest risk profile of banks and financial institutions. In accordance with the financial analysis group of the banks and other financial institutions, the final risk groups are determined by considering qualitative factors such as shareholding structure, group companies, credit ratings from international credit rating institutions, quality of management and also information obtained from media. As of 31 December 2011, loans granted by the Bank to banks and other financial institutions amount to TL3,631,110 thousand (2010: TL2,058,430 thousand). As of 31 December 2011 and 2010, the concentration level of the loans and advances to banks and other financial institutions which are neither past due nor impaired in accordance with the defined financial analysis groups of the Bank are as follows:

31 December 2011 31 December 2010

Concentration level Concentration level Rating Class (%) (%) Low 1-2 54 22 Medium 3 24 33 High 4 22 45

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TÜRKİYE İHRACAT KREDİ BANKASI A.Ş. NOTES TO THE FINANCIAL STATEMENTS AT 31 DECEMBER 2011 (Amounts expressed in thousands of Turkish Lira (“TL”), unless otherwise indicated.) NOTE 3 - FINANCIAL RISK MANAGEMENT (Continued) The risk assessment of the companies: In the risk evaluation of the companies, the Bank obtains financial and organizational information both from the companies and also from various sources (such as Central Bank of the Republic of Turkey (“CBRT”) records, Trade Registry Gazette, Chamber of Trade records, information obtained from the Undersecretariat of Foreign Trade, banks and companies operating in the same sector) and uses investigation and verification methods. In addition to the analysis of the last three year financial statements of the companies, the Bank also analyses the current status of the sectors in which the companies operate, economic and political changes affecting the target sectors in the international markets, the advantages and disadvantages of the companies compared to their rival companies operating in or outside Turkey. In case the company is a member of a group of companies not organized as a holding company, the developments that affect the group’s operations are monitored and outstanding bank debts of the group are also assessed and company analysis reports are prepared taking into account the group risk as well. The Bank does not utilize a separate rating system regarding the risk assessment of the companies. As of 31 December 2011 and 2010, the analysis of credit limits for top 60 corporate customers constituting approximately 67% and 82%, respectively of total loans to corporate customers amounting to TL4,409,548 thousand (2010-TL1,452,666 thousand) and whose loans are neither past due nor impaired at 31 December 2011 and 2010 is as follows; 31 December 2011 31 December 2010 Concentration Concentration Credit Limits level level (TL’000) (%) (%) 0-20,000 4 26 20,000-40,000 21 31 40,000-60,000 23 15 Over 60,000 52 28 As of 31 December 2011 and 2010, the classification and allowance percentages of the loans and advances of the Bank are as follows: 31 December 2011 31 December 2010 Loans and Allowance Loans and Allowance advances for loan losses advances for loan losses (%) (%) (%) (%)

Standard loans and advances 97.55 - 97.08 - Loans and advances under close monitoring 1.04 - 0.10 - Impaired loans and advances 1.41 100.00 2.82 100.00 Total 100.00 2.24 100.00 4.06

F-25


TÜRKİYE İHRACAT KREDİ BANKASI A.Ş. NOTES TO THE FINANCIAL STATEMENTS AT 31 DECEMBER 2011 (Amounts expressed in thousands of Turkish Lira (“TL”), unless otherwise indicated.) NOTE 3 - FINANCIAL RISK MANAGEMENT (Continued) The Bank’s maximum exposure to credit risk as of 31 December 2011 and 2010: 31 December 2011 31 December 2010

Credit risk exposures relating to on-balance sheet assets: Due from banks 667,357 886,750 Loans and advances to - Domestic banks and other financial institutions 3,492,429 1,987,088 - Foreign banks and other financial institutions 138,681 71,342 - Corporate customers other than banks and financial institutions and personnel 4,366,104 2,047,845 Trading securities 342,935 308,488 Derivative financial instruments 15,895 1,885 Investment securities - Held-to-maturity 511,436 891,703 Other assets 13,335 5,087 Credit risk exposures relating to off-balance sheet items: Financial guarantees 518,997 1,078,703 Total 10,067,169 7,278,891 There are no financial assets that are past due but not impaired and there are no past due or impaired financial assets at 31 December 2011 and 2010, other than loans and advances explained above. As of 31 December 2011 and 2010, the trading securities and investment securities (held to maturity securities) are issued by the Turkish Treasury, the controlling shareholder of the Bank. The table below shows the concentration level of due from banks for domestic banks and financial institutions which constitute approximately 70% of due from banks account at 31 December 2011 and 2010;

31 December 2011 31 December 2010 Concentration level Concentration level Rating Class (%) (%) Low 1-2 86 50 Medium 3 9 21 High 4 5 29

F-26


TÜRKİYE İHRACAT KREDİ BANKASI A.Ş. NOTES TO THE FINANCIAL STATEMENTS AT 31 DECEMBER 2011 (Amounts expressed in thousands of Turkish Lira (“TL”), unless otherwise indicated.) NOTE 3 - FINANCIAL RISK MANAGEMENT (Continued) As of 31 December 2011 and 2010, the geographical distribution of the on-balance sheet assets exposed to credit risk; EU OECD Other Turkey Countries Countries(*) USA Countries Total Due from banks 613,352 12,060 1,384 40,561 - 667,357 Loans and advances to - Domestic banks and other financial institutions 3,492,429 - - - - 3,492,429 - Foreign banks and other financial institutions - - - - 138,681 138,681 - Corporate customers and personnel 4,366,104 - - - - 4,366,104 Trading securities 342,935 - - - - 342,935 Derivative financial instruments - 15,895 - - - 15,895 Investment securities - Held-to-maturity 511,436 - - - - 511,436 Other assets 13,335 - - - - 13,335 As of 31 December 2011 9,339,591 27,955 1,384 40,561 138,681 9,548,172 As of 31 December 2010 5,820,154 308,335 229 128 71,342 6,200,188 (*) The OECD countries except for EU countries, Canada and USA. As of 31 December 2011 and 2010, the sectoral distribution of the on-balance sheet assets exposed to credit risk; Wholesale Financial and Retail Public Institutions Agriculture Manufacturing Trade Construction Sector Other Personnel Total Due from banks 667,357 - - - - - - - 667,357 Loans and advances to -Domestic banks and other financial institutions 3,492,429 - - - - - - - 3,492,429 -Foreign banks and other financial institutions 138,681 - - - - - - - 138,681 -Corporate customers and personnel - 136,271 3,430,586 111,598 380,628 - 304,615 2,406 4.366.104 Trading securities - - - - - 342,935 - - 342,935 Derivative financial instruments 15,895 - - - - - - - 15,895 Investment securities -Held-to-maturity - - - - - 511,436 - - 511,436 Other assets 8,354 - 4,356 625 - - - - 13,335 As of 31 December 2011 4,322,716 136,271 3,434,942 112,223 380,628 854,371 304,615 2,406 9,548,172 As of 31 December 2010 2,948,529 24,076 1,213,147 31,179 754,769 1,200,191 25,706 2,591 6,200,188

F-27


TÜRKİYE İHRACAT KREDİ BANKASI A.Ş. NOTES TO THE FINANCIAL STATEMENTS AT 31 DECEMBER 2011 (Amounts expressed in thousands of Turkish Lira (“TL”), unless otherwise indicated.) NOTE 3 - FINANCIAL RISK MANAGEMENT (Continued) (c) Market risk The Bank marks to market all its Turkish lira and foreign currency trading security positions as a result of its daily financial activities in order to be able to hedge market risk. In order to limit any possible losses from market risk, the Bank applies a maximum daily transaction and stop/loss limits for all trading Turkish lira and foreign currency transactions including marketable security transactions; such limits are approved by the Board of Directors. Sensitivity Tests In accordance with the mission of the Bank, the Bank does not follow a profit oriented strategy but rather follows a strategy aiming to avoid the eroding effects of inflation on the share capital by making reasonable amount of profit. Under this framework, necessary changes to loan interest rates are made considering the changes in cost of funds and market interest rates; changes in the interest rates are made using the expected year-end inflation levels as break-even point considering the return on equity at the same time. In this context, the sensitivity analysis are also prepared under various scenarios (optimistic, pessimistic and normal) and also under abnormal fluctuation (stress) assumptions which measure the sensitivity of the net profit to the changes in market interest rates and the Bank’s loan interest rates. Moreover, possible losses arising from interest rate and foreign exchange risk are calculated under various scenarios and in order to minimize possible losses, the Bank undertakes swap transactions (especially money and interest swaps). The market risk table of calculated market risk at month ends (for one day) for the years ended 31 December 2011 and 2010, as per the statutory financial statements prepared for BRSA reporting purposes within the scope of “Regulation on Measurement and Assessment of Capital Adequacy of Banks” published in Official Gazette no.26333 dated 1 November 2006 showing the maximum and minimum total amount subject to market risk among the twelve months of calculated market risk for each year and the average of the total amount subject to market risk for each month end for 12 months are as follows: 31 December 2011 31 December 2010 Average Maximum Minimum Average Maximum Minimum Interest Rate Risk 5,448 8,058 3,914 3,781 5,371 3,097 Equity Share risk - - - - - - Currency Risk 33,383 42,765 30,664 28,184 35,238 22,352 Total Capital to be Employed for Market Risk (A) 38,831 50,823 34,578 31,965 40,609 25,449 Total Amount Subject to Market Risk (A*12.5) 485,387 635,287 432,224 399,562 507,613 318,113

F-28


TÜRKİYE İHRACAT KREDİ BANKASI A.Ş. NOTES TO THE FINANCIAL STATEMENTS AT 31 DECEMBER 2011 (Amounts expressed in thousands of Turkish Lira (“TL”), unless otherwise indicated.) NOTE 3 - FINANCIAL RISK MANAGEMENT (Continued) (d) Currency risk Foreign currency denominated assets and liabilities, together with purchase and sale commitments give rise to foreign exchange exposure. The Bank’s foreign exchange position is followed daily, and the transactions are performed in accordance with the expectations in the market and within the limits determined by the Risk Management Principles approved by the Board of Directors of the Bank. The Bank attempts to maintain a square position in foreign exchange through its on-balance sheet and off-balance sheet activities. As part of its strategy to manage the impact of exchange rates and to hedge against foreign exchange exposure, the Bank enters into swap transactions. Short-term currency swap transactions, carried out during the year to meet exporters' foreign exchange loan demand and to manage the Bank's foreign currency risk. The Bank takes on exposure to effects of fluctuations in the prevailing foreign currency exchange rates on its financial position and cash flows. Included in the table are the Bank’s assets, liabilities and equity at carrying amounts, categorized by currency. The table below summarizes the Bank’s exposure to foreign currency exchange rate risk as monitored by management at 31 December 2011 and 2010. 31 December 2011 US$ EUR JPY Other TL Total Cash and due from banks 78,986 103,297 1,384 1,789 481,913 667,369 Trading securities 41,571 - - - 301,364 342,935 Derivative financial instruments 9 - 3 - 15,883 15,895 Loans and advances to customers 4,247,885 1,199,808 8,296 6,404 2,534,821 7,997,214 Investment securities - Available-for-sale - - - - 11,295 11,295 - Held-to-maturity 45,364 - - - 466,072 511,436 Property and equipment and intangible assets - - - - 10,262 10,262 Other assets 5,042 8,954 - 15 12,727 26,738 Total assets 4,418,857 1,312,059 9,683 8,208 3,834,337 9,583,144 Funds borrowed 3,023,234 1,646,526 - - - 4,669,760 Debt securities in issue 960,419 - - - - 960,419 Interbank money market deposits - - - - 157,988 157,988 Derivative financial instruments 12,547 - - - 10,770 23,317 Other liabilities 33,901 6,467 - - 71,672 112,040 Reserve for employment termination benefits - - - - 11,560 11,560 Equity 129 - - - 3,647,931 3,648,060 Total liabilities and equity 4,030,230 1,652,993 - - 3,899,921 9,583,144 Net balance sheet position 388,627 (340,934) 9,683 8,208 (65,584) - Off balance sheet derivative instruments net notional position (404,802) 333,855 6,699 - 56,603 (7,645) At 31 December 2011, assets and liabilities denominated in foreign currency were translated into Turkish lira using foreign exchange rate of TL1.9141 = US Dollar 1 (“US$”) and TL2.4730 = EUR1.

F-29


TÜRKİYE İHRACAT KREDİ BANKASI A.Ş. NOTES TO THE FINANCIAL STATEMENTS AT 31 DECEMBER 2011 (Amounts expressed in thousands of Turkish Lira (“TL”), unless otherwise indicated.) NOTE 3 - FINANCIAL RISK MANAGEMENT (Continued) 31 December 2010 US$ EUR JPY Other TL Total Cash and due from banks 86,336 306,495 229 105 493,606 886,771 Trading securities 3,646 - - - 304,842 308,488 Derivative financial instruments 168 - - - 1,717 1,885 Loans and advances to customers 2,039,988 699,839 11,770 6,441 1,348,237 4,106,275 Investment securities - Available-for-sale - - - - 15,202 15,202 - Held-to-maturity 50,862 - - - 840,841 891,703 Property and equipment and intangible assets - - - - 8,494 8,494 Other assets 1,487 562 - 9 8,690 10,748 Total assets 2,182,487 1,006,896 11,999 6,555 3,021,629 6,229,566 Funds borrowed 804,071 994,641 - - - 1,798,712 Derivative financial instruments 3,982 - - - 21,182 25,164 Other liabilities 735,512 1,985 - - 27,195 764,692 Reserve for employment termination benefits - - - - 10,856 10,856 Equity 174 - - - 3,629,968 3,630,142 Total liabilities and equity 1,543,739 996,626 - - 3,689,201 6,229,566 Net balance sheet position 638,748 10,270 11,999 6,555 (667,572) - Off balance sheet derivative instruments net notional position (638,076) (10,284) - - 631,120 (17,240) At 31 December 2010, assets and liabilities denominated in foreign currency were translated into Turkish lira using foreign exchange rate of TL1.5416 = US$1 and TL2.0568 = EUR1. As of 31 December 2011 and 2010, the effect of the devaluation of TL by 10% against other currencies mentioned below, on net profit and equity of the Bank, are presented in the table below. The analysis covers all foreign currency denominated assets and liabilities. The other variables, especially interest rates are assumed to be fixed. 31 December 2011 31 December 2010 Effect on Effect on Effect on Effect on Net Profit Equity (*) Net Profit Equity (*) US$ (1,620) (1,607) (1,194) (1,176) EUR (1,377) (1,377) 1,027 1,027 JPY 968 968 1,200 1,200 Other currencies 822 822 656 655 Total (1,207) (1,194) 1,689 1,706 (*) Effect on equity also includes effect on net income. As of 31 December 2011 and 2010, the effect of the appreciation of TL by 10% against other currencies with all other variables held constant, on net profit and equity of the Bank is the same as the total amount with a negative sign as presented in the above table.

F-30


TÜRKİYE İHRACAT KREDİ BANKASI A.Ş. NOTES TO THE FINANCIAL STATEMENTS AT 31 DECEMBER 2011 (Amounts expressed in thousands of Turkish Lira (“TL”), unless otherwise indicated.) NOTE 3 - FINANCIAL RISK MANAGEMENT (Continued) (e) Interest rate risk The Bank estimates the effects of the changes in interest rates on the profitability of the Bank by analyzing TL and foreign currency denominated interest rate sensitive assets and liabilities considering both their interest components as being fixed rate or variable rate and also analyzing their weights among the Bank’s total assets and liabilities. Long or short positions arising from interest rate risk are determined by currency types at the related maturity intervals (up to 3 months, 3 months to 1 year, 1 year to 5 years and over 5 years) as of the period remaining to repricing date, considering the repricing of TL and foreign currency-denominated interest sensitive assets and liabilities at maturity date (for fixed rate) or at interest payment dates (for floating rate). By classifying interest sensitive assets and liabilities according to their repricing dates, Bank’s exposure to possible variations in market interest rates are determined. The Bank determines maturity mismatches of assets and liabilities by analyzing the weighted average days to maturity of TL and foreign currency-denominated (for each currency and in total in terms of their US$ equivalents) assets and liabilities. According to the Risk Management Policy approved by the Board of Directors, the Bank emphasizes the matching of assets and liabilities with fixed and floating interest rates and under different currencies and also pays special attention to the level of maturity mismatch of assets and liabilities with floating and fixed interest rates in relation to the asset size of the Bank in order to limit the negative effects of interest rate changes on the Bank’s profitability. As of 31 December 2011 and 2010, the tables below summarize the Bank’s assets and liabilities in carrying amounts classified in terms of periods remaining to contractual repricing dates; 31 December 2011 Non- Up to 3 3 months 1 year to Over interest months to 1 year 5 years 5 years bearing Total Cash and due from banks 659,189 - - - 8,180 667,369 Trading securities 63,279 207,159 32,855 39,642 - 342,935 Derivative financial instruments 12,892 3,003 - - - 15,895 Loans and advances to customers 4,137,735 3,779,769 79,710 - - 7,997,214 Investment securities - Available-for-sale - - - - 11,295 11,295 - Held-to-maturity 224,795 196,179 90,462 - - 511,436 Property and equipment and intangible assets - - - - 10,262 10,262 Other assets - - - - 26,738 26,738 Total assets 5,097,890 4,186,110 203,027 39,642 56,475 9,583,144 Funds borrowed 2,938,965 1,730,795 - - - 4,669,760 Debt securities in issue - - 960,419 - - 960,419 Interbank money market deposit 157,988 - - - - 157,988 Derivative financial instruments 23,226 91 - - - 23,317 Other liabilities 13,085 14,674 3,630 - 80,651 112,040 Reserve for employment termination benefits - - - - 11,560 11,560 Total liabilities 3,133,264 1,745,560 964,049 - 92,211 5,935,084 Net repricing gap 1,964,626 2,440,550 (761,022) 39,642 (35,736) 3,648,060

F-31


TÜRKİYE İHRACAT KREDİ BANKASI A.Ş. NOTES TO THE FINANCIAL STATEMENTS AT 31 DECEMBER 2011 (Amounts expressed in thousands of Turkish Lira (“TL”), unless otherwise indicated.) NOTE 3 - FINANCIAL RISK MANAGEMENT (Continued) 31 December 2010 Non- Up to 3 3 months 1 year to Over interest months to 1 year 5 years 5 years bearing Total Cash and due from banks 883,681 - - - 3,090 886,771 Trading securities - 138,691 166,152 3,645 - 308,488 Derivative financial instruments 1,885 - - - - 1,885 Loans and advances to customers 1,809,870 2,257,586 38,819 - - 4,106,275 Investment securities - Available-for-sale - - - - 15,202 15,202 - Held-to-maturity 489,206 285,976 116,521 - - 891,703 Property and equipment and intangible assets - - - - 8,494 8,494 Other assets - - - - 10,748 10,748 Total assets 3,184,642 2,682,253 321,492 3,645 37,534 6,229,566 Funds borrowed 1,605,707 193,005 - - - 1,798,712 Derivative financial instruments 24,887 277 - - - 25,164 Other liabilities 81,208 568,491 - - 114,993 764,692 Reserve for employment termination benefits - - - - 10,856 10,856 Total liabilities 1,711,802 761,773 - - 125,849 2,599,424 Net repricing gap 1,472,840 1,920,480 321,492 3,645 (88,315) 3,630,142 The tables below summarise the range for effective average interest rates by major currencies for monetary financial instruments of the Bank at 31 December: 31 December 2011 US$ (%) EUR (%) JPY (%) TL (%) Assets Cash and due from banks -Time deposits in foreign banks 0.35 0.64 - - -Time deposits in domestic banks - - - 10.13 -Interbank money market placements - - 10.40 Trading securities 6.20 - - 7.99 Loans and advances to customers 1.67 2.76 2.60 7.48 Investment securities -Held-to-maturity 6.77 - - 8.89 Liabilities Funds borrowed 0.75 2.50 - - Debt securities in issue 5.38 - - - Interbank money market deposits - - - 5.75

F-32


TÜRKİYE İHRACAT KREDİ BANKASI A.Ş. NOTES TO THE FINANCIAL STATEMENTS AT 31 DECEMBER 2011 (Amounts expressed in thousands of Turkish Lira (“TL”), unless otherwise indicated.) NOTE 3 - FINANCIAL RISK MANAGEMENT (Continued) 31 December 2010 US$ (%) EUR (%) JPY (%) TL (%) Assets Cash and due from banks -Time deposits in foreign banks 0.44 0.6 - - -Time deposits in domestic banks - - - 6.43 Trading securities 7.05 - - 8.35 Loans and advances to customers 2.68 3.16 3.22 8.49 Investment securities -Held-to-maturity 6.56 - - 7.52 Liabilities Funds borrowed 1.33 2.62 - - In the analysis presented below, the sensitivity of the statement of comprehensive income is the effect of (+) 1% and (-) 1% decrease in the interest rates on the net interest income of floating rate financial assets and liabilities at 31 December 2011 and 2010. The sensitivity of the shareholders’ equity at 31 December 2011 and 2010 is calculated through revaluating the financial assets available-for-sale taking into account the possible changes in interest rates, where applicable. The tax effects are not considered in the analysis. The other variables, especially exchanges rates, are assumed to be fixed in this analysis.

31 December 2011 31 December 2010 (+) 1% (-) 1% (+) 1% (-) 1%

Gain/(Loss) Gain/(Loss) Gain/(Loss) Gain/(Loss) Effect Effect Effect Effect TL (1,618) 1,537 (3,101) 2,728 US$ 1,933 (1,776) 3,167 (3,172) EUR 616 (715) 496 (207) Other foreign currencies 32 (34) 46 (50) Total 963 (988) 608 (701) (f) Liquidity risk A major objective of the Bank’s asset and liability management is to ensure that sufficient liquidity is available to meet the Bank’s commitments and to satisfy the Bank’s own liquidity needs. The Bank measures and manages its cash flow commitments on a daily basis, and maintains liquid assets determined by the Board of Directors which it judges sufficient to meet its commitments. The matching and controlled mismatching of the maturities and interest rates of assets and liabilities is fundamental to the liquidity management of the Bank. The ability to fund the existing and prospective debt requirements is managed by maintaining sufficient cash and marketable securities, the availability of funding through an adequate amount of committed credit lines and the ability to close out market positions. It is unusual for banks ever to be completely matched since the maturity, interest rates and the types of business transactions are different. An unmatched position potentially enhances profitability, but also increases the risk of losses. The maturities of assets and liabilities and the ability to replace, at an acceptable cost, interest-bearing liabilities as they mature, are important factors in assessing the liquidity of the Bank and its exposure to changes in interest rates and exchange rates.

F-33


TÜRKİYE İHRACAT KREDİ BANKASI A.Ş. NOTES TO THE FINANCIAL STATEMENTS AT 31 DECEMBER 2011 (Amounts expressed in thousands of Turkish Lira (“TL”), unless otherwise indicated.) NOTE 3 - FINANCIAL RISK MANAGEMENT (Continued) The Bank uses the TL and foreign currency cash flow schedules prepared weekly, monthly and annually in the decision making process of the liquidity management. As of 31 December 2011 and 2010, the table below analyses the assets and liabilities of the Bank into relevant maturity groupings based on the remaining period at balance sheet date to the contractual maturity dates. 31 December 2011 Uup to 3 months 1 year to Over 5 No stated 3 months to 1 year 5 years years maturity Total Cash and due from banks 667,369 - - - - 667,369 Trading securities 63,279 207,159 32,855 39,642 - 342,935 Derivative financial instruments 12,892 3,003 - - - 15,895 Loans and advances to customers 3,531,760 3,830,107 635,347 - - 7,997,214 Investment securities - Available-for-sale - - - - 11,295 11,295 - Held-to-maturity 180,364 77,893 164,583 88,596 - 511,436 Property and equipment and intangible assets - - - - 10,262 10,262 Other assets - 11,599 15,139 - - 26,738 Total assets 4,455,664 4,129,761 847,924 128,238 21,557 9,583,144 Funds borrowed 2,260,587 1,836,534 207,630 365,009 - 4,669,760 Debt securities in issue - - 960,419 - - 960,419 Interbank market deposits 157,988 - - - - 157,988 Derivative financial instruments 23,226 91 - - - 23,317 Other liabilities 13,085 44,674 54,281 - - 112,040 Reserve for employment termination benefits 11,560 - - - - 11,560 Total liabilities 2,466,446 1,881,299 1,222,330 365,009 - 5,935,084 Net liquidity gap 1,989,218 2,248,462 (374,406) (236,771) 21,557 3,648,060

F-34


TÜRKİYE İHRACAT KREDİ BANKASI A.Ş. NOTES TO THE FINANCIAL STATEMENTS AT 31 DECEMBER 2011 (Amounts expressed in thousands of Turkish Lira (“TL”), unless otherwise indicated.) NOTE 3 - FINANCIAL RISK MANAGEMENT (Continued) 31 December 2010 Up to 3 months 1 year to Over 5 No stated 3 months to 1 year 5 years years maturity Total Cash and due from banks 883,681 - - - 3,090 886,771 Trading securities - 138,690 166,152 3,646 - 308,488 Derivative financial instruments 1,885 - - - - 1,885 Loans and advances to customers 1,462,815 2,361,072 276,548 5,840 - 4,106,275 Investment securities - Available-for-sale - - - - 15,202 15,202 - Held-to-maturity 355,919 273,898 190,874 71,012 - 891,703 Property and equipment and intangible assets - - - - 8,494 8,494 Other assets - - - - 10,748 10,748 Total assets 2,704,300 2,773,660 633,574 80,498 37,534 6,229,566 Funds borrowed 599,643 840,263 133,064 225,742 - 1,798,712 Derivative financial instruments 21,182 277 3,705 - - 25,164 Other liabilities 81,208 568,491 - - 114,993 764,692 Reserve for employment termination benefits - - - - 10,856 10,856 Total liabilities 702,033 1,409,031 136,769 225,742 125,849 2,599,424 Net liquidity gap 2,002,267 1,364,629 496,805 (145,244) (88,315) 3,630,142 The undiscounted cash flows of the financial liabilities of the Bank into relevant maturity grouping based on the remaining period at 31 December 2011 and 2010 to the contractual maturity dates are presented in the tables below: 31 December 2011 Demand and up to 3 months 1 year to Over 5 No 3 months to 1 year 5 years years maturity Total Funds borrowed 2,265,361 1,875,871 345,535 457,591 - 4,944,358 Debt securities in issue - 52,442 1,165,674 - - 1,218,116 Interbank money market deposits 158,824 - - - - 158,824 Other financial liabilities 36,311 7,652 3,630 - 50,450 98,043 Total financial liabilities 2,460,496 1,935,965 1,514,839 457,591 50,450 6,419,341 31 December 2010 Demand and up to 3 months 1 year to Over 5 No 3 months to 1 year 5 years years maturity Total Funds borrowed 220,593 1,266,100 130,959 257,250 - 1,874,902 Other financial liabilities 102,390 568,767 3,706 - 125,849 800,712 Total financial liabilities 322,983 1,834,867 134,665 257,250 125,849 2,675,614

F-35


TÜRKİYE İHRACAT KREDİ BANKASI A.Ş. NOTES TO THE FINANCIAL STATEMENTS AT 31 DECEMBER 2011 (Amounts expressed in thousands of Turkish Lira (“TL”), unless otherwise indicated.) NOTE 3 - FINANCIAL RISK MANAGEMENT (Continued) The undiscounted cash inflows and outflows of derivative transactions of the Bank at 31 December 2011 and 2010 are presented in the tables below: 31 December 2011 Up to 3 months 1 year to Over 5 3 months to 1 year 5 years years Total Derivatives held for trading: Foreign exchange derivatives: - Outflow 1,208,387 - - - 1,208,387 - Inflow 1,200,742 - - - 1,200,742 Interest rate derivatives: - Outflow 1,529 1,529 6,802 - 9,860 - Inflow 712 832 3,403 - 4,947 Total outflow 1,209,916 1,529 6,802 - 1,218,247 Total inflow 1,201,454 832 3,403 - 1,205,689 31 December 2010 Up to 3 months 1 year to Over 5 3 months to 1 year 5 years years Total Derivatives held for trading: Foreign exchange derivatives: - Outflow 668,431 29,800 - - 698,231 - Inflow 661,972 - - - 661,972 Interest rate derivatives: - Outflow 570 953 5,450 - 6,973 - Inflow 1,232 1,856 7,941 - 11,029 Total outflow 669,001 30,753 5,450 - 705,204 Total inflow 663,204 1,856 7,941 - 673,001 As of 31 December 2011 and 2010, the maturity groupings of financial guarantees and commitments based on the earliest period they can be claimed from the Bank are as follows: 31 December 2011 Up to 1 month 6 months Over 1 month to 6 months to 1 year 1 year Total Share capital investment commitment - - - 1,000 1,000 Other guarantees 113,933 403,610 1,454 - 518,997 Total 113,933 403,610 1,454 1,000 519,997

F-36


TÜRKİYE İHRACAT KREDİ BANKASI A.Ş. NOTES TO THE FINANCIAL STATEMENTS AT 31 DECEMBER 2011 (Amounts expressed in thousands of Turkish Lira (“TL”), unless otherwise indicated.) NOTE 3 - FINANCIAL RISK MANAGEMENT (Continued) 31 December 2010 Up to 1 month 6 months Over 1 month to 6 months to 1 year 1 year Total Endorsements 74,186 614,546 - - 688,732 Share capital investment commitment - - - 2,000 2,000 Other guarantees 8,170 364,596 12,383 4,822 389,971 Total 82,356 979,142 12,383 6,822 1,080,703 (g) Fair value of financial instruments Fair value is the amount at which a financial instrument could be exchanged in a current transaction between willing parties, other than in a forced sale or liquidation, and is best evidenced by a quoted market price, if one exists. The estimated fair values of financial instruments have been determined by the Bank using available market information and appropriate valuation methodologies. However, judgment is necessarily required to interpret market data to develop the estimated fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Bank could realize in a current market exchange. The following methods and assumptions were used to estimate the fair value of the Bank's financial instruments: (i) Financial assets The fair values of certain financial assets carried at cost or amortized cost, including cash and due from banks (including receivables from CBRT) are considered to approximate their respective carrying values due to their short-term nature. The fair value of investment securities has been determined based on bid market prices at balance sheet dates. Loans and advances to customers are net of provisions for impairment. The estimated fair value of loans and advances to customers represents the discounted amount, at current market rates, of future cash flows expected to be received. The fair value of other financial assets is also considered to approximate their respective carrying values due to their nature. (ii) Financial liabilities The fair value of funds borrowed is based on market prices or are based on discounted cash flows using current interest rates prevailing at the balance sheet date (Note 13). The fair value of other financial liabilities is also considered to approximate their respective carrying values due to their nature.

F-37


TÜRKİYE İHRACAT KREDİ BANKASI A.Ş. NOTES TO THE FINANCIAL STATEMENTS AT 31 DECEMBER 2011 (Amounts expressed in thousands of Turkish Lira (“TL”), unless otherwise indicated.) NOTE 3 - FINANCIAL RISK MANAGEMENT (Continued) (iii) Derivative financial instruments The fair values of foreign exchange and interest rate swaps have been estimated based on quoted market rates prevailing at the balance sheet date (Notes 7 and 22). The following table summarises the carrying amounts and fair values of those significant financial assets and liabilities not presented on the Bank’s balance sheet at their fair value. 31 December 2011 31 December 2010 Carrying Fair Carrying Fair value value value value Financial assets: Cash and due from banks 667,369 667,369 886,771 886,771 Investment securities - Held to maturity 511,436 513,720 891,703 900,459 Loans and advances to customers 7,997,214 8,082,416 4,106,275 4,112,136 Other financial assets 26,228 26,288 11,813 11,813 Financial liabilities: Funds borrowed 4,669,760 4,683,915 1,798,712 1,809,631 Debt securities in issue 960,419 965,280 - - Interbank money market deposits 157,988 159,500 - - Other financial liabilities 93,224 93,224 748,209 748,209 The following table summarizes the fair values of those financial assets and liabilities presented on the Bank’s balance sheet based on the hierarchy of valuation technique as of 31 December 2011 and 2010. 31 December 2011 Level 1 (*) Level 2 (**) Level 3 (***) Total Financial assets at fair value through profit and loss Financial assets held for trading - Debt securities 342,935 - - 342,935 - Derivatives - 15,895 - 15,895 Available-for-sale financial assets - Investment securities - equity 8,295 - 3,000 (****) 11,295 Total assets 351,230 15,895 3,000 370,125 Financial liabilities at fair value through profit and loss Financial liabilities held for trading - Derivatives - 23,317 - 23,317 Total liabilities - 23,317 - 23,317

F-38


TÜRKİYE İHRACAT KREDİ BANKASI A.Ş. NOTES TO THE FINANCIAL STATEMENTS AT 31 DECEMBER 2011 (Amounts expressed in thousands of Turkish Lira (“TL”), unless otherwise indicated.) NOTE 3 - FINANCIAL RISK MANAGEMENT (Continued) 31 December 2010 Level 1 (*) Level 2 (**) Level 3 (***) Total Financial assets at fair value through profit and loss Financial assets held for trading - Debt securities 308,488 - - 308,488 - Derivatives - 1,885 - 1,885 Available-for-sale financial assets - Investment securities - equity 13,202 - 2,000 (****) 15,202 Total assets 321,690 1,885 2,000 (****) 325,575 Financial liabilities at fair value through profit and loss Financial liabilities held for trading - Derivatives - 25,164 - 25,164 Total liabilities - 25,164 - 25,164 (*) Fair values are calculated with quoted prices (unadjusted) in active markets for listed equity securities and

debt instruments. This level includes listed equity securities and debt instruments actively traded on exchanges.

(**) Fair values are calculated with observable input parameters (either directly as prices or indirectly as derived from prices) for derivative transactions. This level includes OTC derivative contracts.

(***) Fair values are calculated with unobservable inputs for equity instruments. (****) Note 9a. (h) Capital management Banks in Turkey are required to comply with capital adequacy guidelines promulgated by the BRSA, which are based upon the standards established by the Bank of International Settlements (“BIS”). These guidelines require banks to maintain adequate levels of regulatory capital against risk-bearing assets and off-balance sheet exposures. A bank’s capital adequacy ratio is calculated by taking the aggregate of its Tier I capital (which comprises paid-in capital, reserves, retained earnings and profit for the current period minus period loss (if any), prepaid expenses, leasehold improvements and intangible assets), its Tier II capital (which comprises general loan and free reserves, revaluation funds and subordinated loans obtained) and its Tier III capital (which comprises certain qualified subordinated loans in accordance with BIS guidelines) minus deductions (which comprises participations in financial institutions, special and preliminary and negative differences between fair and book values of subsidiaries, subordinated loans extended, goodwill and capitalized costs), and dividing this aggregate by risk weighted assets, which reflect both credit risk, market risk and operational risk. In accordance with these guidelines, banks must maintain a total capital adequacy ratio of a minimum of 8%. The Bank has complied with the minimum capital adequacy ratio requirement, stated above, for the years ended 31 December 2011 and 2010.

F-39


TÜRKİYE İHRACAT KREDİ BANKASI A.Ş. NOTES TO THE FINANCIAL STATEMENTS AT 31 DECEMBER 2011 (Amounts expressed in thousands of Turkish Lira (“TL”), unless otherwise indicated.) NOTE 3 - FINANCIAL RISK MANAGEMENT (Continued) The Bank’s regulatory capital position on at 31 December 2011 and 2010 were as follows: 31 December 2011 31 December 2010 Tier I capital 3,657,278 3,656,594 Tier II capital 49,949 27,970 Total regulatory capital (A) 3,707,227 3,684,564 Risk-weighted assets (including market and operational risk) (B) 3,865,201 2,580,167 Capital adequacy ratio (%) (A)/(B) 95.91 142.80 NOTE 4 - CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS IN APPLYING

ACCOUNTING POLICIES The Bank makes estimates and assumptions that affect the reported amounts of assets and liabilities within the next financial period. Estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. (a) Impairment losses on loans and advances to customers The Bank reviews its loan portfolio periodically, to assess impairment. For individually impaired assets, the Bank provides 100% impairment. The specific counterparty component of the total allowances for impairment applies to claims evaluated individually for impairment and is based upon management’s best estimate of the present value of cash flows that are expected to be received. In estimating these cash flows, management makes judgement about counterparty’s financial situation and the net realisable value of any underlying collateral. As of 31 December 2011 and 2010, the Bank provided 100% impairment provision for individually impaired loans and advances. Collective impairment allowances cover credit losses inherent in the portfolio of loans with similar economic characteristics when there is objective evidence to suggest that they contain impaired claims, but the individual impaired items cannot yet be identified. In assessing the need for collective loan loss allowances, management considers factors such as credit quality, portfolio size, concentrations, and economic factors. In order to estimate the required allowance, assumptions are made to define the required input parameter, based on historical experience and current economic conditions. Were the defined input parameter where the collective loan loss allowance is based differ by +/- 0.5% , the impairment loss to be estimated is TL40,328 thousand higher/lower.

F-40


TÜRKİYE İHRACAT KREDİ BANKASI A.Ş. NOTES TO THE FINANCIAL STATEMENTS AT 31 DECEMBER 2011 (Amounts expressed in thousands of Turkish Lira (“TL”), unless otherwise indicated.) NOTE 4 - CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS IN APPLYING

ACCOUNTING POLICIES (Continued) (b) Fair value of derivatives The fair values of financial instruments that are not quoted in active markets are determined by using valuation techniques such as discounted cash flow models. Where valuation techniques are used to determine fair values, they are validated and periodically reviewed by qualified personnel independent of the area that created them. NOTE 5 - CASH AND DUE FROM BANKS 31 December 2011 31 December 2010 Cash funds: Cash on hand 12 21 12 21 Current accounts and demand deposits: CBRT 25,660 682 Foreign banks 5,751 2,170 Domestic banks 1,516 218 32,927 3,070 Time deposits: Foreign banks 40,051 304,655 Domestic banks 469,788 579,025 509,839 883,680 Interbank money market placements 124,591 - Total cash and due from banks 667,369 886,771 Cash and cash equivalents included in the statements of cash flows for the year ended 31 December is as follows: 31 December 2011 31 December 2010 31 December 2009 Cash and due from banks 667,369 886,771 2,059,197 Less: interest accruals (456) (1,300) (1,052) Less: time deposits with maturities exceeding 3 months - (25,000) (9,000) Cash and cash equivalents 666,913 860,471 2,049,145 Cash and cash equivalents are mainly composed of bank deposits and interbank money market placements with original maturity periods of less than three months as of 31 December 2011, 2010 and 2009.

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TÜRKİYE İHRACAT KREDİ BANKASI A.Ş. NOTES TO THE FINANCIAL STATEMENTS AT 31 DECEMBER 2011 (Amounts expressed in thousands of Turkish Lira (“TL”), unless otherwise indicated.) NOTE 6 - TRADING SECURITIES 31 December 2011 31 December 2010 Government bonds 301,364 304,842 Eurobonds 41,571 3,646 342,935 308,488 As of 31 December 2011, the carrying value of securities subject to repo transactions is TL230,868 thousand (2010: None). As of 31 December 2010, government bonds amounting to TL92,680 thousand have been pledged as collateral with the CBRT and ISE. NOTE 7 - DERIVATIVE FINANCIAL INSTRUMENTS The Bank utilises the following derivative instruments: “Currency and interest rate swaps” are commitments to exchange one set of cash flows for another. Swaps result in an economic exchange of currencies or interest rates. Currency swaps involve the exchange of principal as well. The Bank’s “credit risks” represents the potential cost of replacing the swap contracts if counterparties fail to perform their obligation. This risk is monitored on an ongoing basis with reference to the current fair value, a proportion of the notional amount of the contracts and the liquidity of the market. To control the level of credit risk taken, the Bank assesses counterparties using the same techniques as for its lending activities. The notional amounts of certain types of financial instruments provide a basis for comparison with instruments recognised on the balance sheet but do not necessarily indicate the amounts of future cash flows involved or the current fair value of the instruments and, therefore, do not indicate the Bank’s exposure to credit or price risks. The derivative instruments become favorable (as assets) or unfavorable (as liabilities) as a result of fluctuations in foreign exchange rates and interest rates. The aggregate contractual or notional amount of derivative financial instruments on hand, the extent to which instruments are favorable or unfavorable and, thus the aggregate fair values of derivative financial assets and liabilities can fluctuate significantly from time to time. The fair values of derivative instruments held as of 31 December 2011 and 2010 are set out in the following table: 31 December 2011 31 December 2010 Fair value Fair value Assets Liabilities Assets Liabilities

Interest rate swaps purchases and sales - (4,842) - (3,982) Foreign currency swaps purchases and sales 15,895 (18,475) 1,885 (21,182) Total derivative assets/(liabilities) 15,895 (23,317) 1,885 (25,164) As also explained in Note 2 (c), even though certain derivative transactions, while providing effective economic hedges under the Bank’s risk management position, do not qualify for hedge accounting under the specific rules in IAS 39, and are therefore treated as derivatives held for trading.

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TÜRKİYE İHRACAT KREDİ BANKASI A.Ş. NOTES TO THE FINANCIAL STATEMENTS AT 31 DECEMBER 2011 (Amounts expressed in thousands of Turkish Lira (“TL”), unless otherwise indicated.) The notional amounts of derivative transactions are explained in detail in Note 22.

F-43


TÜRKİYE İHRACAT KREDİ BANKASI A.Ş. NOTES TO THE FINANCIAL STATEMENTS AT 31 DECEMBER 2011 (Amounts expressed in thousands of Turkish Lira (“TL”), unless otherwise indicated.) NOTE 8 - LOANS AND ADVANCES TO CUSTOMERS The Bank follows loans and advances to customers under one class as corporate loans; the classifications in the table below mainly refer to lending programs of the Bank to corporate customers; 31 December 2011 31 December 2010 Short-term Financial institutions 2,739,251 1,723,748 Export guaranteed loans 527,065 394,108 Fund sourced loans (Note 15) 17,922 640,937 Specialised loans 64,424 9,870 Discount loans 3,113,343 687,310 Other guaranteed loans 18,690 40,712 6,480,695 3,496,685 Medium and long-term Financial institutions 753,178 263,340 Export guaranteed loans 417,730 211,300 Foreign country loans (political risks) 138,681 71,342 Specialized loans 19,012 6,159 Export guaranteed investment loans 10,550 11,222 Fund sourced loans (Note 15) 3,630 - Other 156,854 94,576 1,499,635 657,939 Performing loans 7,980,330 4,154,624 Loans under close monitoring 85,289 4,514 Impaired loans and advances 114,853 120,776 Gross loans and advances to customers 8,180,472 4,279,914 Allowance for loan losses (183,258) (173,639) Net loans and advances to customers 7,997,214 4,106,275 The Bank provides 100% impairment provision for non-performing loans amounting to TL114,853 thousand (2010: TL120,776 thousand) comprising 1.40% (2010: 2.82%) of the total loans outstanding at 31 December 2011. The Bank also provided an additional impairment provision amounting to TL68,405 thousand (2010: TL52,863 thousand) for other components of the loan portfolio to cover the incurred of loss present in the lending relationship but not yet identified with a specific loan.

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TÜRKİYE İHRACAT KREDİ BANKASI A.Ş. NOTES TO THE FINANCIAL STATEMENTS AT 31 DECEMBER 2011 (Amounts expressed in thousands of Turkish Lira (“TL”), unless otherwise indicated.) NOTE 8 - LOANS AND ADVANCES TO CUSTOMERS (Continued) Movements in the provision for impairment losses for the years ended 31 December 2011 and 2010 are as follows: 2011 2010 Balance at the beginning of the year 173,639 157,738 Recoveries (Note 20) (8,794) (3,488) Provision for the year 18,413 19,389 Balance at the end of the year 183,258 173,639 Loans and advances to the public and private sector are as follows: 31 December 2011 31 December 2010 Public sector 832,133 374,549 Private sector 7,348,339 3,905,365 8,180,472 4,279,914 NOTE 9 - INVESTMENT SECURITIES (a) Available-for-sale securities: 31 December 2011 31 December 2010 Equity securities - Listed 8,295 13,202 - Unlisted 3,000 2,000 Total available-for-sale securities 11,295 15,202 There are no securities pledged under repurchase agreements or pledged as collateral with financial institutions. Unrealised gain and losses arising from changes in the fair value of securities classified as “available-for-sale” are recognized in other comprehensive income unless there is objective evidence that the asset is impaired in which case they are charged to the income statement.

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TÜRKİYE İHRACAT KREDİ BANKASI A.Ş. NOTES TO THE FINANCIAL STATEMENTS AT 31 DECEMBER 2011 (Amounts expressed in thousands of Turkish Lira (“TL”), unless otherwise indicated.) NOTE 9 - INVESTMENT SECURITIES (Continued) The breakdown of available-for-sale equity securities at 31 December 2011 and 2010 are as follows: Share % Carrying Amount Equity securities 2011 2010 2011 2010 Business Garanti Faktoring Hizmetleri A.Ş. 9.78 9.78 8,295 13,202 Factoring Kredi Garanti Fonu A.Ş. (*) 1.66 1.66 3,000 2,000 Financial services 11,295 15,202 (*) On 15 October 2009, the Bank acquired 1.66% interest in Kredi Garanti Fonu A.Ş. (Credit Guarantee Fund) which was established

to provide financing support to small and medium size enterprises with a total consideration of TL2,000 thousand as cash and TL2,000 thousand as share capital commitment. The Bank paid TL1,000 thousand of the capital commitment in the year 2011 and increased the Bank’s equity investment at Kredi Garanti Fonu A.Ş. to TL3,000 thousand.

(b) Held-to-maturity securities: 31 December 2011 31 December 2010 Debt Securities - Government bonds 466,072 747,757 - Eurobonds - 93,084 - Treasury bills 45,364 50,862 Total held-to-maturity securities 511,436 891,703 As of 31 December 2011, government bonds and treasury bills amounting to TL182,309 thousand (2010: TL156,815 thousand) have been pledged as collateral with the CBRT and Istanbul Stock Exchange-Settlement and Custody Bank. The movement of held-to-maturity securities for the years ended 31 December 2011 and 2010 are as follows: 2011 2010 Balance at 1 January 891,703 309,068 Purchases 242,578 1,115,881 Redemptions (639,199) (537,579) Foreign exchange difference 10,938 509 Interest income accruals 5,416 3,824 Balance at 31 December 511,436 891,703

F-46


TÜRKİYE İHRACAT KREDİ BANKASI A.Ş. NOTES TO THE FINANCIAL STATEMENTS AT 31 DECEMBER 2011 (Amounts expressed in thousands of Turkish Lira (“TL”), unless otherwise indicated.) NOTE 10 - PROPERTY AND EQUIPMENT Land and Other Buildings Vehicles tangibles Total At 1 January 2010 Cost 17,134 553 10,064 27,751 Accumulated depreciation (-) 9,444 553 9,310 19,307 Net book amount 7,690 - 754 8,444 Year ended 31 December 2010 Opening net book amount 7,690 - 754 8,444 Additions - - 65 65 Depreciation charge (-) 309 - 96 405 Closing net book amount 7,381 - 723 8,104 At 31 December 2010 Cost 17,134 553 10,129 27,816 Accumulated depreciation (-) 9,753 553 9,406 19,712 Net book amount 7,381 - 723 8,104 Year ended 31 December 2011 Opening net book amount 7,381 - 723 8,104 Additions - 805 1,502 2,307 Depreciation charge (-) 310 37 371 718 Closing net book amount 7,071 768 1,854 9,693 At 31 December 2011 Cost 17,134 1,358 11,631 30,123 Accumulated depreciation (-) 10,063 590 9,777 20,430 Net book amount 7,071 768 1,854 9,693

F-47


TÜRKİYE İHRACAT KREDİ BANKASI A.Ş. NOTES TO THE FINANCIAL STATEMENTS AT 31 DECEMBER 2011 (Amounts expressed in thousands of Turkish Lira (“TL”), unless otherwise indicated.) NOTE 11 - INTANGIBLE ASSETS 31 December 2011 31 December 2010 Opening net book amount 390 654 Additions (*) 488 7 Disposals - - Amortisation charge (-) 309 271 Net book amount 569 390 Cost 1,677 1,189 Accumulated amortisation (-) 1,108 799 Net book amount 569 390 (*) Additions represent computer software purchases. NOTE 12 - OTHER ASSETS 31 December 2011 31 December 2010 Financial assets Receivables from Development and Support Fund 9,319 7,505 Insurance premiums receivables 4,304 3,409 Other 12,605 999 Non-financial assets Upfront fees paid 8,039 4,700 Other 1,790 1,640 36,057 18,253 Provision for impairment on other assets (9,319) (7,505) 26,738 10,748 As at 31 December 2011, US$447,071 (TL856 thousand, 2010: TL689 thousand) receivable from the Development and Support Fund is due to the incomplete payment of General Headquarters of Gendarme regarding the military equipment purchases. Rest of the receivables from the Development and Support Fund, amounting to US$4,421,357 (TL8,463 thousand, 2010: TL6,816 thousand), arises from the exchange losses due to the late transfer of the funds to the Bank from the Ministry of Defense. As of 31 December 2011, there is no improvement in the collection of these receivables and 100% provision is recognised as provision for impairment on other assets.

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TÜRKİYE İHRACAT KREDİ BANKASI A.Ş. NOTES TO THE FINANCIAL STATEMENTS AT 31 DECEMBER 2011 (Amounts expressed in thousands of Turkish Lira (“TL”), unless otherwise indicated.) NOTE 13 - FUNDS BORROWED 31 December 2011 31 December 2010 Interbank money market deposits - TL 157,988 - Domestic Banks 3,432,740 985,780 Foreign Banks 1,237,020 812,932 Funds borrowed 4,669,760 1,798,712 Interest rate for interbank money market deposits is 5.75% and the maturity dates of such deposits is 25 January 2012 and 25 April 2012. The breakdown of funds borrowed as of 31 December 2011 and 2010 is as follows: 31 December 2011 Original Currency Original Interest TL Maturity Amount (‘000) Currency rate (‘000) Dates CBRT loans 1,341,761 US$ 1.13 2,568,264 (*) CBRT loans 199,980 EUR 2.18 494,551 (*) Syndicated loan 165,220 EUR 2.58 408,590 1 June 2012 World Bank (EFIL) Loans 129,156 US$ 0.53 247,217 1 March 2038 Subordinated loan 108,538 US$ 0.71 207,753 15 April 2018 T.C. Ziraat Bankası A.Ş. 50,556 EUR 3.72 125,026 13 March 2012 ING Bank NV 50,532 EUR 3.73 124,966 15 Agust 2012 ING Bank - Amsterdam 70,952 EUR 2.89 175,465 25 April 2012 - 7 November 2012 Demir-Halkbank NV - Netherland 25,238 EUR 3.75 62,414 29 March 2012 Mizuho Corporate Bank Ltd 25,228 EUR 2.59 62,389 24 August 2012 Europen Investment Bank 50,142 EUR 2.03-2.19 124,002 17 December 2021- 3 October 2023 World Bank (EFIL) Loans 12,720 EUR 1.78 31,457 1 March 2038 Ziraat International AG 15,231 EUR 4.03 37,666 15 August 2012 Total funds borrowed 4,669,760 31 December 2010 Original Currency Original Interest TL Maturity Amount (‘000) Currency rate (‘000) Dates CBRT loans 313,765 US$ 0.84 483,700 (*) Syndicated loan 150,188 EUR 2.16 308,906 2 December 2011 ING Bank Club Loan 150,477 EUR 1.98 309,502 27 April 2011 Subordinated loan 125,198 US$ 0.69 193,005 16 April 2018 World Bank (EFIL) Loans 82,620 US$ 0.55 127,366 1 March 2038 CBRT loans 99,685 EUR 1.57 205,032 (*) T.C. Ziraat Bankası A.Ş. 50,585 EUR 2.97 104,043 18 February 2011 Europen Investment Bank 25,016 EUR 1.44 51,454 17 December 2021 World Bank (EFIL) Loans 7,635 EUR 1.18 15,704 16 April 2018 Total funds borrowed 1,798,712 (*) CBRT loans are rediscount loans extended by CBRT, having wide range of maturity dates.

F-49


TÜRKİYE İHRACAT KREDİ BANKASI A.Ş. NOTES TO THE FINANCIAL STATEMENTS AT 31 DECEMBER 2011 (Amounts expressed in thousands of Turkish Lira (“TL”), unless otherwise indicated.) NOTE 13 - FUNDS BORROWED (Continued) The repayment of the funds borrowed was as follows during 2011: Repayment Repayment Amount Dates

Subordinated Loans US$8,333,000 15 April 2011 Subordinated Loans US$8,333,000 15 October 2011 Ziraat Bankası EUR 50,000,000 18 February 2011 Club Loan, Syndicated Loan EUR150,000,000 27 April 2011 Club Loan, Syndicated Loan EUR150,000,000 2 December 2011 Debt securities in issue As of 31 December 2011, the total liability amount due for bonds issued by the Bank on October 2011, amounting to US$500 million is TL960,419 thousand with TL952,332 thousand as principal and the TL8,087 thousand as interest. NOTE 14 - TAXATION According to Act number 3332 and article 4/b of Act number 3659, dated 25 March 1987 and 26 September 1990, respectively, the Bank is exempt from Corporate Tax. Due to the 3rd Article of the same act; the above mentioned exemption became valid from 1 January 1988. In accordance with clause 9 of the Provisional Article 1 of Corporate Tax Law No. 5520, which states “The provision of Article 35 shall not apply to exemptions, allowances and deductions included in other laws in relation to Corporation Tax prior to the effective date of the Law No. 5520” , the exemption from Corporation Tax continues. Accordingly, deferred tax asset or liability is not recognized in these financial statements. NOTE 15 - OTHER LIABILITIES The principal components of other liabilities are as follows:

31 December 2011 31 December 2010 Financial liabilities Guarantees received (***) 29,305 5,565 Turkish Treasury-current account-Iraq Credit 21,454 634,928 Funds 103 6,711 Funds from United Nations Compensation Fund-Iraq Credit 35 95,068 Other (*) 42,327 5,937 Non-financial liabilities Insurance technical provisions 4,900 4,054 Vacation pay liability (**) 6,802 5,313 Other 7,114 7,116 112,040 764,692

F-50


TÜRKİYE İHRACAT KREDİ BANKASI A.Ş. NOTES TO THE FINANCIAL STATEMENTS AT 31 DECEMBER 2011 (Amounts expressed in thousands of Turkish Lira (“TL”), unless otherwise indicated.) NOTE 15 - OTHER LIABILITIES (Continued) (*) This amount covers the bonus accrual amounting to TL30,000 thousand allocated by the Bank

management for the second half of 2008 and for the years 2009, 2010 and 2011, in which no bonus was paid to the employees, taking into the account the cases that resulted in decisions against the Bank (Note 22).

(**) Payment amounting to TL479 thousand was made from the vacation pay liability account during the year

2011. (***) Guarantees received refers to cash guarantees obtained in relation to Pre-shipment export credits, which

has increased in line with the increase in the amount of pre-shipment export credits. Turkish Treasury-current account-Iraq Credit As of 31 December 2011, the funds recorded under the Turkish Treasury current account consists of the funds transferred by the Turkish Treasury to the Bank to finance Iraq loans including the related interest income and foreign exchange differences amounting to TL396 thousand (2010: TL8,098 thousand) and the principal amounting to TL21,058 thousand (2010: TL626,830 thousand). The total amounting to TL21,454 thousand (2010: TL634,928 thousand) is recorded as ‘Fund Sourced loans’ under the account ‘Loans and advances to customers’ (Note 8). As of 25 February 2011, Law No. 6111 on the Restructuring of Certain Receivables was enacted. With this regulation, which enabled debts to be restructured, it was possible for the Iraq Loan provided through the Development and Support Fund (“DSF”) to be restructured. According to this law, payments which were transferred from United Nations Compensation Fund (“UNCF”) and similar sources, amounting to TL99,566 thousand (US$61,586 thousand) and payments made by the companies whose loans were restructured, amounting to TL183,949 thousand (US$113,781 thousand) and TL5,247 thousand (EUR2,241 thousand) were transferred to the Undersecretariat of Treasury. In addition, the interest amounting to TL191,619 thousand (US$118,525 thousand) for the restructured loans was cancelled by the Bank in the scope of the restructuring. Accordingly, the Undersecretariat of Treasury Current Account - Iraq Loan amounted to TL634,928 thousand as of 31 December 2011, was recorded as TL21,454 thousand as of 31 December 2011 following the cancellations and collections amounting to TL658,520 thousand which were made under the scope of restructuring and also considering the exchange difference amounting to TL45,046 thousand, calculated for the period ended 31 December 2011. Funds ‘Fund Sourced loans’ also include TL98 thousand (2010: TL6,009 thousand) of ‘Funds’ accounted under Other Liabilities account. These funds are transferred to the Bank by Turkish Treasury and are covered by Turkish Treasury. Therefore, the Bank does not reflect any gains or losses to the statements of income on such loans. Within the framework of the Law No. 6111 mentioned above TL5,910 thousand of the funds transferred by the Turkish Treasury were liquidated due to collections or transferred loans.

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TÜRKİYE İHRACAT KREDİ BANKASI A.Ş. NOTES TO THE FINANCIAL STATEMENTS AT 31 DECEMBER 2011 (Amounts expressed in thousands of Turkish Lira (“TL”), unless otherwise indicated.) NOTE 15 - OTHER LIABILITIES (Continued) Funds from United Nations Compensation Fund-Iraq Credit A United Nations Compensation Commission Fund covers the compensation payments that start to be transferred to the Bank for firms granted the right to receive compensation payments from those firms that use credit within the scope of the Iraqi credit scheme run by the United Nations Compensation Commission. The funds were kept in the temporary accounts of the Bank until the method to be used in the liquidation of the Iraqi credit scheme was confirmed, but they now have been transferred to the accounts of the Undersecretariat of the Treasury after being deducted from the firm’s debts as of the date of the transfer within the scope of restructuring applied in accordance with Law No. 6111. The movement for insurance technical provisions are as follows: 2011 2010 1 January 4,054 5,115 Paid claims (3,625) (5,656) Increase 4,471 4,595 31 December 4,900 4,054 NOTE 16 - RETIREMENT BENEFIT OBLIGATIONS Under the Turkish Labor Law, the Bank is required to pay termination benefits to each employee who has completed at least one year of service and whose employment is terminated without due cause, is called up for military service, dies or who retires after completing 25 years of service (20 years for women) and achieves the retirement age (58 for women and 60 for men). Since the legislation was changed on 23 May 2002, there are certain transitional provisions relating to length of service prior to retirement. The amount payable consists of one month's salary limited to a maximum of TL2,731.85 in full TL amount (2010: 2,517.01 TL) as of 31 December 2011. The liability is not funded, as there is no funding requirement. The reserve has been calculated by estimating the present value of the future probable obligation of the Bank arising from the retirement of its employees. IAS 19 “Employment Benefits” requires actuarial valuation methods to be developed to estimate the enterprise's obligation for such benefits. Accordingly, the following actuarial assumptions were used in the calculation of the total liability as at 31 December 2011 and 2010: 31 December 2011 31 December 2010 Discount rate (%) 4.66 4.66 Rate to estimate the probability of retirement (%) 0.98 0.98

F-52


TÜRKİYE İHRACAT KREDİ BANKASI A.Ş. NOTES TO THE FINANCIAL STATEMENTS AT 31 DECEMBER 2011 (Amounts expressed in thousands of Turkish Lira (“TL”), unless otherwise indicated.) NOTE 16 - RETIREMENT BENEFIT OBLIGATIONS (Continued) Additionally, the principal actuarial assumption is that the maximum liability for each year of service would increase in line with inflation. Thus the discount rate applied represents the expected real rate after adjusting for the effects of future inflation. As the maximum liability is revised semi-annually, the maximum amount of TL2,805.04 in full TL amount, which is effective from 1 January 2011 (1 January 2011: TL2,623.23), has been taken into consideration in calculating the reserve for employment termination benefit of the Bank. Movement in the reserve for employment termination benefits for the years ended 31 December 2011 and 2010 are as follows: 2011 2010 1 January 10,856 9,963 Charge for the year 813 414 Interest expense 506 589 Actuarial losses 531 644 Payments during the year (1,146) (754) 31 December 11,560 10,856 NOTE 17 - SHARE CAPITAL The historical paid in share capital of the Bank is TL2,000,000 thousand (2010: TL2,000,000 thousand) and consists of 2 billion (2010: 2 billion) authorized shares with a nominal value of TL1 each. 31 December 2011 31 December 2010 Share capital - historical cost 2,000,000 2,000,000 Adjustment to share capital 812,518 812,518 Total paid in share capital 2,812,518 2,812,518 The Bank is fully owned by Turkish Treasury. The adjustment to share capital represents the restatement effect of cash and cash equivalent contributions to share capital in terms of equivalent purchasing power at 31 December 2005 after elimination of the accumulated deficit.

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TÜRKİYE İHRACAT KREDİ BANKASI A.Ş. NOTES TO THE FINANCIAL STATEMENTS AT 31 DECEMBER 2011 (Amounts expressed in thousands of Turkish Lira (“TL”), unless otherwise indicated.) NOTE 18 - RETAINED EARNINGS AND RESERVES Retained earnings as per the statutory financial statements other than legal reserves are available for distribution, subject to the legal reserve requirement referred to below. Under the Turkish Commercial Code and in accordance with the Articles of Association of the Bank, the Bank is required to create the following legal reserves from appropriations of earnings, which are available for distribution only in the event of liquidation or losses: a) First legal reserve, appropriated at the rate of 5% of net income, until the total reserve is equal to

20% of issued and fully paid-in share capital. b) Second legal reserve, appropriated at the rate of 10% of the distribution of second dividend, in

excess of the first legal reserve, appropriated at a rate of 5% and first dividend, appropriated at a rate of 8%.

NOTE 19 - NET INTEREST INCOME 31 December 2011 31 December 2010 Interest income on: Interest on loans and advances to customers 231,230 171,921 Interest on held to maturity investments 42,017 37,183 Interest on deposits with banks 22,052 12,814 Interest on trading financial assets 15,476 22,117 Interest on interbank money market placements 1,847 71,432 Other interest income 737 286 Total interest income 313,359 315,753 Interest expense on: Interest on funds borrowed (36,299) (26,997) Interest on debt securities in issue (8,248) - Interest expense on money market transactions (4,308) - Other interest expenses (14) (48) Total interest expense (48,869) (27,045) Net interest income 264,490 288,708 NOTE 20 - OTHER OPERATING INCOME 31 December 2011 31 December 2010 Insurance premium income 34,380 28,219 Commission from reinsurance companies 9,041 7,598 Recoveries from non-performing loans (Note 8) 8,794 3,488 Other 1,188 3,161 Total 53,403 42,466

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TÜRKİYE İHRACAT KREDİ BANKASI A.Ş. NOTES TO THE FINANCIAL STATEMENTS AT 31 DECEMBER 2011 (Amounts expressed in thousands of Turkish Lira (“TL”), unless otherwise indicated.) NOTE 21 - OPERATING EXPENSES 31 December 2011 31 December 2010 Bonus provision expense (*) 30,000 - Staff costs (***) 25,668 23,374 Premiums paid to reinsurance companies 23,465 18,517 KOSGEB fee (**) 4,699 5,229 Employment termination benefits and unused vacation provision expense 3,339 2,076 Research expenses 2,786 2,065 BRSA contribution expense 2,415 1,887 Depreciation and amortisation charges (Notes 10 and 11) 1,027 676 Taxes and duties expenses 1,026 982 Vehicle expenses 972 1,465 Other 11,858 8,900 107,255 65,171 (*) Bank management has allocated bonus provision at an amount of TL30,000 thousand for the second half of

2008 and for the years 2009, 2010 and 2011 in which no bonus was paid to the employees, taking into account the cases that resulted in decisions against the Bank.

(**) As the Bank’s more than 50% of the paid-in share capital is owned by the government entities, the Bank is obliged to pay annual fee at a rate of 2% of the corporate tax base of the Bank to Small and Medium Industries Development Organization (“KOSGEB”) in accordance with the establishment law of KOSGEB.

(***) Pension contributions included in staff costs, amount to TL6,187 thousand and TL5,834 thousand for the years ending 31 December 2011 and 2010.

NOTE 22 - COMMITMENTS AND CONTINGENT LIABILITIES In the normal course of banking activities, the Bank undertakes various commitments and incurs certain contingent liabilities that are not presented in the balance sheets, including letters of guarantee, other guarantees and off-balance sheet derivative instruments. The management does not expect any material losses as a result of these transactions. The following is a summary of significant commitments and contingent liabilities: Legal proceedings At 31 December 2011, there are 117 legal proceedings outstanding against the Bank amounting to US$2,593,513, EUR15,000 and TL450,958. As of 31 December 2011, Bank has not provided a provision for these legal proceedings, since possible outflow of resources embodying economic benefits to settle these contingent liabilities will be immaterial. A number of the outstanding litigation cases in Turkish courts relate to employee bonus payments. In the second half of 2008, the Bank ceased paying bi-annual bonuses to its employees. As of 31 December 2011, 57 lawsuits were filed against the Bank by employees who retired after the change was implemented alleging that the Bank should have paid their bonuses. 17 of 57 cases opened by former employees of the Bank at Ankara’s 15th Labour Court with regard to “bonus” payments resulted in decisions against the Bank by the end of 2011. Furthermore, the related decision was also confirmed by the Court of Appeals’ the highest appellate court in Turkey for all these cases. The Bank made a payment of TL151 thousand with regard to the lost cases in 2011.

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TÜRKİYE İHRACAT KREDİ BANKASI A.Ş. NOTES TO THE FINANCIAL STATEMENTS AT 31 DECEMBER 2011 (Amounts expressed in thousands of Turkish Lira (“TL”), unless otherwise indicated.) NOTE 22 - COMMITMENTS AND CONTINGENT LIABILITIES (Continued) In this context, the Bank’s management accured employee bonus provision at an amount of TL30,000 thousand for the second half of 2008, and for the years 2009, 2010 and 2011, in which no bonus was paid, taking into account the cases, that resulted in decisions against the Bank. The related amount covers TL1,550 thousand allocated for ongoing lawsuits opened by retired personnel, TL1,300 thousand allocated for personnel who have retired but not opened a lawsuit yet, and TL27,150 thousand allocated for employees who are actively working for the Bank. Commitments under derivative instruments: The breakdown of swap transactions at 31 December 2011 and 2010 is as follows: 31 December 2011 31 December 2010 Foreign Foreign currency currency Currency amount TL 000 amount TL 000 Transaction Type Interest rate swap purchases US$ 21,000,000 40,196 30,000,000 46,248 Foreign currency swap purchases EUR 135,000,000 333,855 15,000,000 30,852 TL 327,902,500 327,903 631,119,930 631,120 JPY 271,705,000 6,698 - - Foreign currency forward purchases US$ 212,279,510 406,324 - - TL 125,961,718 125,962 - - Total purchases 1,240,938 708,220 Interest rate swap sales US$ 21,000,000 40,196 30,000,000 46,248 Foreign currency swap sales US$ 357,046,630 683,423 413,905,225 638,076 TL - - 20,000,000 41,136 Foreign currency forward sales US$ 66,717,100 127,703 - - TL 397,260,801 397,261 - - Total sales 1,248,583 725,460 2,489,521 1,433,680

F-56


TÜRKİYE İHRACAT KREDİ BANKASI A.Ş. NOTES TO THE FINANCIAL STATEMENTS AT 31 DECEMBER 2011 (Amounts expressed in thousands of Turkish Lira (“TL”), unless otherwise indicated.) NOTE 22 - COMMITMENTS AND CONTINGENT LIABILITIES (Continued) Maturity analysis of swap and forward transactions are as follows: 31 December 2011 Up to 3 3 months 1 year to Over 5 months to 1 year 5 years Years Total Interest rate swap purchases - - 40,196 - 40,196 Foreign currency swap purchases 668,456 - - - 668,456 Forward foreign currency purchases 532,286 - - - 532,286 Total purchases 1,200,742 - 40,196 - 1,240,938 Interest rate swap sales - - 40,196 - 40,196 Foreign currency swap sales 683,423 - - - 683,423 Forward foreign currency sales 524,964 - - - 524,964 Total sales 1,208,387 - 40,196 - 1,248,583 31 December 2010 Up to 3 3 months 1 year to Over 5 months to 1 year 5 years Years Total Interest rate swap purchases - - 46,248 - 46,248 Foreign currency swap purchases 661,972 - - - 661,972 Total purchases 661,972 - 46,248 - 708,220 Interest rate swap sales - - 46,248 - 46,248 Foreign currency swap sales 668,431 10,781 - - 679,212 Total sales 668,431 10,781 46,248 - 725,460 The above tables summarize the Bank’s derivative transactions that will be settled on a net basis into relevant maturity groupings based on the remaining period at the balance sheet date, in respective currencies. Accordingly, the difference between the “sale” and “purchase” transactions represents the net exposure of the Bank with respect to commitments arising from these transactions. Credit related commitments: Letters of guarantee, which represent irrevocable assurances that the Bank will make payments in the event that a customer cannot meet its obligations to third parties, carry the same credit risk as loans. Cash requirements under these guarantees are considerably less than the amount of the commitment because the Bank does not generally expect the third party to draw funds under the agreement. The total outstanding contractual amount of commitments to extend credit does not necessarily represent future cash requirements, since many of these commitments will expire or terminate without being funded.

F-57


TÜRKİYE İHRACAT KREDİ BANKASI A.Ş. NOTES TO THE FINANCIAL STATEMENTS AT 31 DECEMBER 2011 (Amounts expressed in thousands of Turkish Lira (“TL”), unless otherwise indicated.) NOTE 22 - COMMITMENTS AND CONTINGENT LIABILITIES (Continued) The following table shows the outstanding credit related commitments of the Bank at 31 December 2011 and 2010: 31 December 2011 31 December 2010 Financial guarantees Endorsements - Foreign currency - 688,732 Other guarantees - Foreign currency 518,997 389,971 Total financial guarantees 518,997 1,078,703 The Bank provides cover for Turkish exporters, against credit risk by offering variety of programs. There exists share capital commitment of the Bank amounting to TL1,000 thousand and TL2,000 thousand as of 31 December 2011 and 2010. NOTE 23 - SEGMENT ANALYSIS The main segments of the Bank are corporate banking and investment banking. Investment banking includes the treasury operations of the Bank whereas corporate banking includes all operations other than treasury (mainly all of the credit operations), which is reported in manner consistent with the internal reporting provided to the chief operating decision maker, the Assistant General Manager of Finance. The analysis is as follows: Corporate Investment 31 December 2011 Banking Banking Unallocated Total Segment revenue 757,393 70,700 - 828,093 Segment expenses (450,485) (124,539) (22,791) (597,815) Net profit 306,908 (53,839) (22,791) 230,278 Interest income 273,984 39,375 - 313,359 Interest expense (48,869) - - (48,869) Depreciation and amortisation - - (1,027) (1,027) Impairment charges on loans (18,413) - - (18,413) Capital expenditures 2,795 - - 2,795 Total segment assets 8,065,279 1,517,865 - 9,583,144 Segment liabilities 5,878,463 - 56,621 5,935,084 Equity - 3,630 3,644,430 3,648,060 Total liabilities and equity 5,878,463 3,630 3,701,051 9,583,144

F-58


TÜRKİYE İHRACAT KREDİ BANKASI A.Ş. NOTES TO THE FINANCIAL STATEMENTS AT 31 DECEMBER 2011 (Amounts expressed in thousands of Turkish Lira (“TL”), unless otherwise indicated.) NOTE 23 - SEGMENT ANALYSIS (Continued) Corporate Investment 31 December 2010 Banking Banking Unallocated Total Segment revenue 476,107 130,712 - 606,819 Segment expenses (325,925) (5,559) (18,865) (350,349) Net profit 150,182 125,153 (18,865) 256,470 Interest income 209,369 106,384 - 315,753 Interest expense (27,045) - - (27,045) Depreciation and amortisation - - (676) (676) Impairment charges on loans (19,389) - - (19,389) Capital expenditures 72 - - 72 Total segment assets 5,006,786 1,212,346 10,434 6,229,566 Segment liabilities 2,539,474 25,164 34,786 2,599,424 Equity - 8,582 3,621,560 3,630,142 Total liabilities and equity 2,539,474 33,746 3,656,346 6,229,566 Reconciliation of segment results of operations to consolidated results of operations. Corporate Investment 31 December 2011 Banking Banking Unallocated Total Interest income 273,984 39,375 - 313,359 Fee and commissions income 5,658 208 - 5,866 Foreign exchange gain 455,465 - - 455,465 Other operating income 22,286 31,117 - 53,403 Total segment revenue 757,393 70,700 - 828,093 Corporate Investment 31 December 2011 Banking Banking Unallocated Total Interest expense (48,869) - - (48,869) Fee and commissions expense (6,081) - - (6,081) Impairment charges on loans (18,413) - - (18,413) Foreign exchange losses (292,967) - - (292,967) Losses on financial instruments classified as held for trading, net - (124,230) - (124,230) Other operating expense (84,155) (309) (22,791) (107,255) Total segment expense (450,485) (124,539) (22,791) (597,815)

F-59


TÜRKİYE İHRACAT KREDİ BANKASI A.Ş. NOTES TO THE FINANCIAL STATEMENTS AT 31 DECEMBER 2011 (Amounts expressed in thousands of Turkish Lira (“TL”), unless otherwise indicated.) NOTE 23 - SEGMENT ANALYSIS (Continued) Corporate Investment 31 December 2010 Banking Banking Unallocated Total Interest income 209,369 106,384 - 315,753 Fee and commissions income 591 213 - 804 Foreign exchange gain 247,769 - - 247,769 Other operating income 18,378 24,115 - 42,493 Total segment revenue 476,107 130,712 - 606,819 Corporate Investment 31 December 2010 Banking Banking Unallocated Total Interest expense (27,045) - - (27,045) Fee and commissions expense (9,940) - - (9,940) Impairment charges on loans (19,389) - - (19,389) Foreign exchange losses (223,921) - - (223,921) Losses on financial instruments classified as held for trading, net - (4,883) - (4,883) Other operating expense (45,630) (676) (18,865) (65,171) Total segment expense (325,925) (5,559) (18,865) (350,349) NOTE 24 - RELATED PARTIES Parties are considered to be related if one party has the ability to control the other party, is under common control or can exercise significant influence over the other party in making financial or operational decisions. For the purpose of this financial information the shareholders of the Bank together with state-controlled entities in Turkey are considered and referred to as related parties. Other related parties refer to entities controlled, jointly controlled or having significance influence by the Turkish Government. A number of banking transactions were entered into with related parties in the normal course of business. (i) Balances with related parties: 31 December 2011 31 December 2010 Due from banks: - Other related parties (1) 246,109 178,822 Loans and advances to customers: - Other related parties (2) 693,452 374,549 Trading securities: - Shareholder (3) 342,935 308,488 Investment securities (“Held to maturity”) - Shareholder (4) 511,436 891,703 Funds borrowed - Other related parties (5) 3,556,380 985,780 Other liabilities - Other related parties 103 6,711

TÜRKİYE İHRACAT KREDİ BANKASI A.Ş. NOTES TO THE FINANCIAL STATEMENTS AT 31 DECEMBER 2011 (Amounts expressed in thousands of Turkish Lira (“TL”), unless otherwise indicated.) NOTE 24 - RELATED PARTIES (Continued)

(1) Average interest rate for due from banks is 4.78% (2010: 4.30%) (2) Average interest rate for loans and advances to customers is 5.19 % (2010: 5.50%) (3) Average interest rate for trading securities is 8% (2010: 7%) (4) Average interest rate for investment securities is 7.9% (2010: 7.8%) (5) Average interest rate for funds borrowed is 1.22% (2010: 0.84%) In relation with the transactions with the Turkish Treasury, please also refer to Note -15 Other Liabilities. (ii) Transactions with related parties: 31 December 2011 31 December 2010 Interest income on investment and trading securities: - Shareholder 57,493 59,300 Interest income on loans and advances to customers: - Other related parties 25,758 19,890 Interest expense on funds borrowed: - Other related parties 15,554 8,963 Operating expenses (taxes paid) -Other related parties 10,665 15,339 (iii) Remuneration of key management personnel: 31 December 2011 31 December 2010 Salaries and other short-term employee benefits 808 656 Post employment benefits 259 206 NOTE 25 - SUBSEQUENT EVENTS On February 2012, the Bank decided to issue bond in international markets up to US$1 billion (or EUR equivalent) and with a maturity of minimum 7 years.

…………………


F-60

F-61

Level: 4 – From: 0 – Tuesday, April 3, 2012 – 15:18 – eprint3 – 4409 Section 10b

TURKIYE IHRACAT KREDI BANKASI A.S.

FINANCIAL STATEMENTS

AT 31 DECEMBER 2010

TOGETHER WITH INDEPENDENT AUDITOR’S REPORT

F-62



To the Board of Directors of

Turkiye Ihracat Kredi Bankası A.S.

1. We have audited the accompanying financial statements of Turkiye Ihracat Kredi Bankası A.S.

(‘‘the Bank’’) which comprise the balance sheet as of 31 December 2010 and the income

statement, statement of comprehensive income, statement of changes in equity and statement of

cash flows for the year then ended and a summary of significant accounting policies and other

explanatory information.


2. Management is responsible for the preparation and fair presentation of these financial statements

in accordance with International Financial Reporting Standards, and for such internal control as

management determines is necessary to enable the preparation of financial statements that are

free from material misstatement, whether due to fraud or error.


3. Our responsibility is to express an opinion on these financial statements based on our audit. We

conducted our audit in accordance with International Standards on Auditing. Those standardsrequire that we comply with ethical requirements and plan and perform the audit to obtain

reasonable assurance whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts anddisclosures in the financial statements. The procedures selected depend on the auditor’s

judgment, including the assessment of the risks of material misstatement of the financial

statements, whether due to fraud or error. In making those risk assessments, the auditor

considers internal control relevant to the entity’s preparation and fair presentation of the

financial statements in order to design audit procedures that are appropriate in the

circumstances, but not for the purpose of expressing an opinion on the effectiveness of the

entity’s internal control. An audit also includes evaluating the appropriateness of accounting

policies used and the reasonableness of accounting estimates made by management, as well asevaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide abasis for our audit opinion.

Opinion

4. In our opinion, the accompanying financial statements present fairly, in all material respects, the

financial position of Turkiye Ihracat Kredi Bankası A.S. as of 31 December 2010 and of its

financial performance and its cash flows for the year then ended in accordance with

International Financial Reporting Standards.

Basaran Nas Bagımsız Denetim ve

Serbest Muhasebeci Mali Musavirlik A.S.

a member of

PricewaterhouseCoopers

Haluk Yalcın, SMMM

Istanbul, 10 February 2011

F-63




AT 31 DECEMBER 2010

Note PageBalance sheet .............................................................................................................................................. F-64Income statement ........................................................................................................................................ F-65Statement of comprehensive income .......................................................................................................... F-66Statement of cash flows .............................................................................................................................. F-67Statement of changes in equity .................................................................................................................. F-68Notes to the financial statements:............................................................................................................ F-69

1 General information.................................................................................................................................... F-692 Significant accounting policies .................................................................................................................. F-69

(a) Basis of presentation of financial statements .................................................................................. F-69(b) Accounting for the effect of hyperinflation .................................................................................... F-71(c) Derivative financial instruments ...................................................................................................... F-72(d) Investment securities ...................................................................................................................... F-72(e) Trading securities ............................................................................................................................ F-72(f) Income and expense recognition .................................................................................................... F-73(g) Interest income and expense .......................................................................................................... F-73(h) Loans and advances to customers and provision for loan impairment .......................................... F-73(i) Financial liabilities .......................................................................................................................... F-73(j) Foreign exchange transactions ........................................................................................................ F-73(k) Property and equipment .................................................................................................................. F-74(l) Intangible assets .............................................................................................................................. F-74(m) Taxation on income ........................................................................................................................ F-74(n) Employment termination benefits .................................................................................................. F-74(o) Provisions ........................................................................................................................................ F-74(p) Offsetting ........................................................................................................................................ F-74(q) Other credit related commitments .................................................................................................. F-74(r) Reporting of cash flows .................................................................................................................. F-75(s) Related parties ................................................................................................................................ F-75(t) Comparatives .................................................................................................................................. F-75

3 Financial risk management ........................................................................................................................ F-75(a) Strategy in using financial instruments .......................................................................................... F-75(b) Credit risk ........................................................................................................................................ F-75(c) Market risk ...................................................................................................................................... F-80(d) Currency risk .................................................................................................................................. F-81(e) Interest rate risk .............................................................................................................................. F-84(f) Liquidity risk .................................................................................................................................. F-86(g) Operational risk .............................................................................................................................. F-90(h) Fair value of financial instruments .................................................................................................. F-90(i) Capital management ........................................................................................................................ F-92

4 Critical accounting estimates and judgments in applying accounting policies.......................................... F-93(a) Impairment losses on loans and advances to customers ................................................................ F-93(b) Fair value of derivatives .................................................................................................................. F-93(c) Impairment of available-for-sale equity investments ...................................................................... F-93(d) Held-to-maturity investments .......................................................................................................... F-94

5 Cash and due from banks .......................................................................................................................... F-946 Trading securities........................................................................................................................................ F-957 Derivative financial instruments ................................................................................................................ F-958 Loans and advances to customers .............................................................................................................. F-969 Investment securities .................................................................................................................................. F-9710 Property and equipment ............................................................................................................................ F-9811 Intangible assets .......................................................................................................................................... F-9912 Other assets ................................................................................................................................................ F-9913 Funds borrowed ........................................................................................................................................ F-10014 Taxation ...................................................................................................................................................... F-10115 Other liabilities .......................................................................................................................................... F-10116 Retirement benefit obligation .................................................................................................................... F-10217 Share capital................................................................................................................................................ F-10318 Retained earnings and reserves .................................................................................................................. F-10319 Net interest income .................................................................................................................................... F-10320 Other operating income .............................................................................................................................. F-10421 Operating expenses .................................................................................................................................... F-10422 Commitments and contingent liabilities .................................................................................................... F-10423 Related parties ............................................................................................................................................ F-107

F-64



BALANCE SHEET AT 31 DECEMBER

(Amounts expressed in thousands of Turkish Lira (‘‘TL’’), unless otherwise indicated.)

Notes 2010 2009

ASSETS

Cash and due from banks .......................................................... 5 886,771 2,059,197

Trading securities ........................................................................ 6 308,488 150,149

Derivative financial instruments .................................................. 7 1,885 16,548

Loans and advances to customers ............................................... 8 4,106,275 3,854,426

Investment securities

– Available-for-sale...................................................................... 9 15,202 13,744– Held-to-maturity....................................................................... 9 891,703 309,068

Property and equipment .............................................................. 10 8,104 8,444

Intangible assets........................................................................... 11 390 654

Other assets.................................................................................. 12 10,748 14,879

Total assets .................................................................................. 6,229,566 6,427,109

LIABILITIES

Funds borrowed .......................................................................... 13 1,798,712 2,025,884


Other liabilities ............................................................................ 15 764,692 728,770

Retirement benefit obligations..................................................... 16 10,856 9,963

Total liabilities ............................................................................. 2,599,424 2,769,906

EQUITY

– Share capital ............................................................................. 17 2,000,000 2,000,000

– Adjustment to share capital ..................................................... 17 812,518 812,518

Total paid in share capital........................................................... 2,812,518 2,812,518

Other reserves .............................................................................. 8,582 7,225

Retained earnings ........................................................................ 18 809,042 837,460

Total equity .................................................................................. 3,630,142 3,657,203

Total liabilities and equity ............................................................ 6,229,566 6,427,109

Commitment and contingent liabilities........................................ 22

The financial statements as at and for the year ended 31 December 2010 have been approved for

issue by the Board of Directors on 10 February 2011 and signed on behalf of the Bank by Necati

Yeniaras, the Chief Financial Officer and; by Muhittin Akbas, the Head of Accounting and

Reporting of the Bank.


F-65



INCOME STATEMENT FOR THE YEARS ENDED 31 DECEMBER


Notes

1 January –

31 December

2010

1 January –

31 December

2009

Interest income.................................................................... 19 315,753 437,972

Interest expense................................................................... 19 (27,045) (50,725)

Net interest income .............................................................. 288,708 387,247

Fee and commission income............................................... 804 2,290Fee and commission expense .............................................. (9,940) (8,585)

Net fee and commission expense.......................................... (9,136) (6,295)

Impairment charges on loans and credit related

commitments .................................................................. 8 (19,389) (52,339)

Foreign exchange gains/(losses), net ................................... 23,875 (23,377)

(losses)/gains on financial instruments classified as held for

trading, net ..................................................................... (4,883) 63,911Other operating income ...................................................... 20 42,466 35,007

Operating profit................................................................... 321,641 404,154

Operating expenses ............................................................. 21 (65,171) (61,713)

Net profit for the year ......................................................... 256,470 342,441


F-66



STATEMENT OF COMPREHENSIVE INCOME FOR THE YEARS ENDED 31 DECEMBER


1 January –

31 December

2010

1 January –

31 December

2009

Net profit for the year ............................................................................... 256,470 342,441

Other comprehensive income

Change in fair value gains on available-for-sale financial assets.............. 1,458 8,618

Amortisation of the fair value gains of held to maturity investmentspreviously classified as available-for-sale financial assets..................... (101) (114)

Total comprehensive income for the year ................................................... 257,827 350,945


F-67



STATEMENT OF CASH FLOWS FOR THE YEARS ENDED 31 DECEMBER


Notes 2010 2009

Cash flows from operating activities:

Net profit for the year ................................................................. 256,470 342,441

Adjustments for:

Depreciation and amortisation.................................................... 21 676 847

Provision for loan losses.............................................................. 8 22,172 66,084

Provision for employment termination benefits .......................... 16 (893) (381)

Provision for unused vacation..................................................... 15 840 896

Remeasurement of derivative financial instruments at fair value 34,539 779

Interest income, net ..................................................................... 19 (288,708) (387,247)

Interest paid................................................................................. (34,710) (53,947)Interest received ........................................................................... 309,684 482,489

Other non-cash items................................................................... 5,754 11,105

Operating profit before changes in operating assets and liabilities 305,824 463,066

Net increase in due from banks .................................................. (16,000) (9,000)

Net increase in loans and advances to customers ....................... (252,636) (35,822)

Net increase in trading securities................................................. (141,991) (105,683)

Net decrease/(increase) in other assets......................................... 4,130 (6,760)

Net decrease in other liabilities ................................................... (4,731) (69,447)

Net cash (used in)/from operating activities .................................. (105,403) 236,354

Cash flows used in investing activities:

Purchases of property and equipment, net.................................. 10,11 (73) (1,206)

Purchases of available-for-sale financial assets............................ — (2,000)

Net increase in investment securities ........................................... (578,811) (64,397)

Net cash used in investing activities .............................................. (578,884) (67,603)

Cash flows used in/from financing activities:

Net (decrease)/increase in borrowed funds.................................. (219,499) 921,910

Dividends paid............................................................................. (284,888) (32,183)

Cash increase in paid-in capital................................................... — 398,894

Net cash (used in)/from financing activities .................................. (504,387) 1,288,621

Effects of exchange-rate changes on cash and cash equivalents .... (4,676) (12,184)

Net (decrease)/increase in cash and cash equivalents .................... (1,188,674) 1,445,188Cash and cash equivalents at the beginning of the year ................ 2,049,145 603,957

Cash and cash equivalents at the end of the year ......................... 5 860,471 2,049,145


F-68



STATEMENT OF CHANGES IN EQUITY FOR THE YEARS ENDED 31 DECEMBER


Share Capital

Share

capital

Adjustment

to share

capital

Total paid-

in capital

Other

reserves

Retained

earnings

Total

equity

Balance at 1 January 2009 ........... 1,326,336 812,518 2,138,854 (1,279) 801,972 2,939,547

Increase in paid-in capital ............ 673,664 — 673,664 — (274,770) 398,894

Dividends paid ............................. — — — — (32,183) (32,183)

Total comprehensive income for

the year ended 31 December

2009 ......................................... — — — 8,504 342,441 350,945

Balance at 31 December 2009....... 2,000,000 812,518 2,812,518 7,225 837,460 3,657,203

Balance at 1 January 2010 ........... 2,000,000 812,518 2,812,518 7,225 837,460 3,657,203

Increase in paid-in capital ............ — — — — — —

Dividends paid ............................. — — — — (284,888) (284,888)



2010 ......................................... — — — 1,357 256,470 257,827



F-69


NOTE 1 – GENERAL INFORMATION

Turkiye Ihracat Kredi Bankası A.S. (‘‘the Bank’’ or ‘‘Eximbank’’) is established as Turkey’s ‘‘Official

Export Credit Agency’’ on 25 March 1987 (transformed from ‘‘State Investment Bank’’) as adevelopment and investment bank and accordingly, the Bank does not accept deposits. The Bank’s

head office is located at Mudafaa Caddesi, 20 Bakanlıklar, Ankara/Turkey. As of 31 December 2009,

the Bank has 2 branches at Istanbul and Izmir and 6 liaison offices at Bursa, Adana, Trabzon,

Denizli, Kayseri and Gaziantep. As of 31 December 2010, the Bank employed 360 people (2009: 382

people).

The Bank has been mandated to support foreign trade through diversification of the exported goods

and services, by increasing the share of exporters and entrepreneurs in international trade, and to

create new markets for the exported commodities, to provide exporters and overseas contractors withsupport to increase their competitiveness and to ensure a risk free environment in international

markets.

As a means of aiding export development services, the Bank performs loan, guarantee and insurance

services in order to financially support export and foreign currency earning services. While performing

above mentioned operations, the Bank provides short, medium or long term, domestic and foreign

currency lending through borrowings from domestic and foreign money and capital markets and from

its own sources.

On the other hand, the Bank also performs fund management (treasury) operations related with itscore banking operations. These operations are domestic and foreign currency capital market

operations, domestic and foreign currency money market operations, foreign currency market

operations, derivative transactions, all of which are approved by the Board of Directors.

The losses due to the political risks arising on loan, guarantee and insurance operations of the Bank,

are transferred to the Undersecretariat of Treasury (‘‘Turkish Treasury’’) according to article 4/c of

Act number 3332 that was appended by Act number 3659 and according to Act regarding the Public

Financing and Debt Management, number 4749, dated 28 March 2002.

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES

The principal accounting policies adopted in the preparation of these financial statements are set out

below. These policies are consistently applied to all periods presented unless otherwise stated.

(a) Basis of presentation of financial statements

These financial statements are prepared in accordance with International Financial Reporting

Standards (‘‘IFRS’’) including International Accounting Standards and Interpretations issued by the

International Accounting Standards Board (‘‘IASB’’).

The Bank maintains its books of accounts and prepares its statutory financial statements in Turkish

Lira in accordance with the Banking Law and in accordance with the ‘‘Regulation on AccountingApplications for Banks and Safeguarding of Documents’’ published in the Official Gazette No.2663

dated 1 November 2006, which refers to Turkish Accounting Standards (‘‘TAS’’) and Turkish

Financial Reporting Standards (‘‘TFRS’’) issued by the Turkish Accounting Standards Board

(‘‘TASB’’) and additional explanations and notes related to them and the accounting principles

promulgated by the Banking Regulation and Supervision Agency (‘‘BRSA’’) and other relevant rules

promulgated by the Turkish Commercial Code and Tax Regulations. These financial statements are

based on the historical cost convention and adjusted as necessary in order to comply with IFRS

issued by the IASB.

The preparation of financial statements in conformity with IFRS requires the use of certain critical

accounting estimates. It also requires management to exercise its judgement in the process of applying

the Bank’s accounting policies. The areas involving a higher degree of judgement or complexity, or

areas where assumptions and estimates are significant to the financial statements are disclosed in

Note 4.


NOTES TO THE FINANCIAL STATEMENTS

AT 31 DECEMBER 2010(Amounts expressed in thousands of Turkish Lira (‘‘TL’’), unless otherwise indicated.)

F-70


Standards, amendments and interpretations effective on or after 1 January 2010

The following amendments to published standards and interpretations to existing standards, effective on or

after 1 January 2010, are not relevant to the Bank’s operations.

IFRS 3 (Revised), ‘‘Business Combinations’’, and consequential amendments to IAS 27,‘‘Consolidated And Separate Financial Statements’’, IAS 28, ‘‘Investments in Associates’’, and IAS 31,

‘‘Interests in Joint Ventures’’, are effective prospectively to business combinations for which the

acquisition date is on or after the beginning of the first annual reporting period beginning on or after

1 July 2009. This is not currently applicable to the Bank as there has been no such transactions.

IFRIC 17, ‘‘Distributions of Non-Cash Assets to Owners’’, effective for annual periods beginning on

or after 1 July 2009. This is not currently applicable to the Bank, as it has not made any non-cash

distributions.

IFRIC 18, ‘‘Transfers of Assets from Customers’’, effective for transfer of assets received on or after

1 July 2009. This is not relevant to the Bank, as it has not received any assets from customers.

‘‘Additional Exemptions for First-Time Adopters’’ (Amendment to IFRS 1) was issued in July 2009.

The amendments are required to be applied for annual periods beginning on o after 1 January 2010.

This is not relevant to the Bank, as it is an existing IFRS preparer.

Improvements to International Financial Reporting Standards 2009 were issued in April 2009. The

effective dates vary standard by standard but most are effective from 1 January 2010.

Standards, amendments and interpretations to existing standards issued but not yet effective for the financialyear beginning 1 January 2010 and have not been early adopted

IFRS 9, ‘‘Financial Instruments’’, issued in December 2009. This addresses the classification and

measurement of financial assets and is likely to affect the Bank’s accounting for its financial assets.

The standard is not applicable until 1 January 2013 but is available for early adoption. The Bank is

yet to assess IFRS 9’s full impact. The Bank has not yet decided when to adopt IFRS 9.

Revised IAS 24, ‘‘Related Party Disclosures’’, issued in November 2009. It supersedes IAS 24,

‘‘Related Party Disclosures’’, issued in 2003. The revised IAS 24 is required to be applied from

1 January 2011. Earlier application, in whole or in part, is permitted.

‘‘Classification of Rights Issues’’ (Amendment to IAS 32), issued in October 2009. For rights issues

offered for a fixed amount of foreign currency, current practice appears to require such issues to beaccounted for as derivative liabilities. The amendment states that if such rights are issued pro rata to

all the entity’s existing shareholders in the same class for a fixed amount of currency, they should be

classified as equity regardless of the currency in which the exercise price is denominated. The

amendment should be applied for annual periods beginning on or after 1 February 2010. Earlier

application is permitted.

‘‘Prepayments of a Minimum Funding Requirement’’ (Amendments to IFRIC 14), issued in

November 2009. The amendments correct an unintended consequence of IFRIC 14, ‘‘IAS 19 – TheLimit On A Defined Benefit Asset, Minimum Funding Requirements and Their Interaction’’. Without

the amendments, entities are not permitted to recognise as an asset some voluntary prepayments for

minimum funding contributions. This was not intended when IFRIC 14 was issued, and the

amendments correct the problem. The amendments are effective for annual periods beginning

1 January 2011. Earlier application is permitted. The amendments should be applied retrospectively to

the earliest comparative period presented.

IFRIC 19, ‘‘Extinguishing Financial Liabilities with Equity Instruments’’. This clarifies the

requirements of IFRSs when an entity renegotiates the terms of a financial liability with its creditor

and the creditor agrees to accept the entity’s shares or other equity instruments to settle the financial

liability fully or partially. The interpretation is effective for annual periods beginning on or after

1 July 2010. Earlier application is permitted.




F-71


Improvements to International Financial Reporting Standards 2009 were issued in April 2009. The

effective dates vary standard by standard but most are effective from 1 January 2010.

IAS 39, ‘‘Financial instruments: Recognition and Measurement – Eligible Hedged Items’’

(Amendment) (Effective from 1 July 2009). The amendment provides guidance for two situations. On

the designation of a one-sided risk in a hedged item, IAS 39 concludes that a purchased option

designated in its entirety as the hedging instrument of a one-sided risk will not be perfectly effective.The designation of inflation as a hedged risk or portion is not permitted unless in particular

situations.

Interpretations and amendments to existing standards that are effective and not relevant for the Bank’soperations

IFRS 3, ‘‘Business Combinations’’ (Revised) (Effective from 1 July 2009). The revised standard

continues to apply the acquisition method to business combinations, with some significant changes.

For example, all payments to purchase a business are to be recorded at fair value at the acquisitiondate, with contingent payments classified as debt subsequently re-measured through the income

statement. There is a choice, on an acquisition-by-acquisition basis, to measure the non-controlling

interest in the acquiree either at fair value or at the non-controlling interest’s proportionate share of

the acquiree’s net assets. All acquisition-related costs should be expensed.

IAS 27, ‘‘Consolidated And Separate Financial Statements’’ (Revised) (Effective from 1 July 2009).

The revised standard requires the effects of all transactions with non-controlling interests to be

recorded in equity if there is no change in control and these transactions will no longer result in

goodwill or gains and losses. The standard also specifies the accounting when control is lost; any

remaining interest in the entity is re-measured to fair value, and a gain or loss is recognised in profit

or loss.

IFRS 1 and IAS 27, ‘‘Cost of an Investment In a Subsidiary, Jointly-Controlled Entity or Associate’’

(Amendment) (Effective from 1 July 2009). The amended standard allows first-time adopters to use a

deemed cost of either fair value or the carrying amount under previous accounting practice to

measure the initial cost of investments in subsidiaries, jointly controlled entities and associates in theseparate financial statements. The amendment also removes the definition of the cost method from

IAS 27 and requires an entity to present dividends from investments in subsidiaries, jointly controlled

entities and associates as income in the separate financial statements of the investor.

IFRIC 17, ‘‘Distribution to Non-Cash Assets to Owners’’ (Effective from 1 July 2009). The standard

addresses how the non-cash dividends distributed to the shareholders should be measured. A dividend

obligation is recognised when the dividend was authorised by the appropriate entity and is no longer

at the discretion of the entity. This dividend obligation should be recognised at the fair value of the

net assets to be distributed. The difference between the dividend paid and the amount carried forward

of the net assets distributed should be recognised in profit and loss. Additional disclosures are to be

made if the net assets being held for distribution to owners meet the definition of a discontinuedoperation.

IFRIC 18, ‘‘Transfers of Assets From Customers’’ (Effective from 1 July 2009). The standard clarifies

how to account for transfers of items of property, plant and equipment by entities that receive suchtransfers from their customers. The interpretation also applies to agreements in which an entity

receives cash from a customer when that amount of cash must be used only to construct or acquire

an item of property, plant and equipment, and the entity must then use that item to provide the

customer with ongoing access to supply of goods and/or services.

(b) Accounting for the effect of hyperinflation

Prior to 1 January 2006, the adjustments and reclassifications made to the statutory records for the

purpose of fair presentation in accordance with IFRS included the restatement of balances and

transactions for the changes in the general purchasing power of the Turkish Lira in accordance with

IAS 29 ‘‘Financial Reporting in Hyperinflationary Economies’’. IAS 29 requires that the financial




F-72


statements prepared in the currency of a hyperinflationary economy be stated in terms of the

measuring unit current at the balance sheet date. As the characteristics of the economic environment

of Turkey indicate that hyperinflation has ceased, effective from 1 January 2006, the Bank no longer

applies the provisions of IAS 29. Accordingly, the amounts expressed in the measuring unit current at31 December 2005 are treated as the basis for the carrying amounts in these financial statements.

(c) Derivative financial instruments

Derivative financial instruments, including currency and interest rate swap instruments, are initially

recognised in the balance sheet at cost (including transaction costs) and are subsequently remeasured

at their fair value. All derivative financial instruments are classified as held for trading. Even though

cross currency swap transactions, while providing effective economic hedges under the Bank’s risk

management position, do not qualify for hedge accounting under the specific rules in IAS 39‘‘Financial Instruments: Recognition and Measurement’’, and are therefore treated as derivatives held

for trading with fair value gains and losses reported in income. Fair values are obtained from quoted

market prices and discounted cash flow models as appropriate. Fair value of over-the-counter

(‘‘OTC’’) forward or swap foreign exchange contracts is determined based on the comparison of the

original forward rate with the market interest rates. All derivatives are carried as assets when the fair

value is positive and as liabilities when the fair value is negative.

(d) Investment securities

Investment securities are classified into the following two categories: held-to-maturity and available-for-sale assets. Investment securities with fixed maturity where management has both the intent and

the ability to hold to maturity are classified as held-to-maturity. Investment securities intended to be

held for an indefinite period of time, which may be sold in response to needs for liquidity or changes

in interest rates, exchange rates or equity prices, are classified as available-for-sale. Management

determines the appropriate classification of its investments at the time of the purchase.

Investment securities are initially recognised at transaction prices, which normally reflect their fair

values.

Available-for-sale investment debt and equity securities are subsequently remeasured at fair value

based on quoted bid prices, or amounts derived from cash flow models. Unrealised gains and losses

arising from changes in the fair value of securities classified as available-for-sale are recognised in the

shareholders’ equity as ‘‘other reserves’’, unless there is a permanent decline in the fair values of such

assets, in which case they are charged to the income statement. Impairment losses recognised in theincome statement on equity instruments are not reversed through the income statement. Equity

securities for which fair values cannot be measured reliably are recognised at cost less impairment.

When the securities are disposed of or impaired, the related accumulated fair value adjustments are

transferred to the income statement.

Held-to-maturity investments are carried at amortised cost using the effective interest rate method,

less any provision for impairment. Interest earned whilst holding investment securities is reported as

interest income. Dividends receivable is included separately in dividend income when a dividend is

declared.

All purchases and sales of investment securities that require delivery with the time frame established

by regulation or market convention (‘‘regular way’’ purchases and sales) are recognised at the

settlement date, which is the date that the asset is delivered to/from the Bank.

(e) Trading securities

Trading securities are securities which were either acquired for generating a profit from short-term

fluctuations in price or dealer’s margin, or are securities included in a portfolio in which a pattern of

short-term profit making exists. These are initially recognised at cost and subsequently re-measured at

fair value based on quoted bid prices or amounts derived from cash flow models. All related realised




F-73


and unrealised gains and losses are included in net trading income. Dividends received are included in

dividend income.

All regular way purchases and sales of trading financial assets are recognised at the settlement date.

(f) Income and expense recognition

Income and expenses are recognised on an accrual basis. Commission income and fees for certain

banking services such as import and export related services and issuance of letters of guarantee and

are recorded as income at the time of affecting the transactions to which they relate.

(g) Interest income and expense

Interest income and expense are recognised in the income statement for all interest bearing

instruments on an accrual basis using the effective yield method based on the actual purchase price

until, in management’s estimates and judgment, collection becomes doubtful. Interest income includes

coupons earned on fixed income securities and accrued discount on treasury bills.

(h) Loans and advances to customers and provision for loan impairment

Loans originated by the Bank by providing money directly to the borrower or to a sub-participation

agent at draw down are categorised as loans originated by the Bank and are carried at amortisedcost, less any provision for loan losses. All originated loans are recognised when cash is advanced to

borrowers.

A credit risk provision for loan impairment is established if there is objective evidence that the Bankwill not be able to collect all amounts due. The amount of the provision is the difference between the

carrying amount and recoverable amount, being the present value of expected cash flows, including

the amount recoverable from guarantees and collateral, discounted based on the interest rate at

inception. The level of the provision is also based on applicable banking regulations. An additional

provision for loan impairment is established to cover losses that are judged to be present in the

lending portfolio at the balance sheet date, but which have not been specifically identified as such.

The provision made during the year is charged against the income for the year. Loans that can not

be recovered are written off and charged against the allowance for loan losses. Such loans are written

off after all the necessary legal proceedings have been completed and the amount of the loan loss is

finally determined. Recoveries of amounts previously provided for are treated as a reduction fromprovision for loan losses for the year (Note 8).

(i) Financial liabilities

Financial liabilities, including funds borrowed from banks, are recognised initially at cost.Subsequently, financial liabilities are stated at amortised cost and any difference between net proceeds

and the redemption value is recognised in the income statement over the period of the financial

liability using the effective yield method.

(j) Foreign exchange transactions

Transactions denominated in foreign currencies are accounted for at the exchange rates prevailing at

the date of the transactions. Foreign exchange gains and losses resulting from the settlement of such

transactions and from the translation at year-end exchange rates of monetary assets and liabilities

denominated in foreign currencies are recognised in the income statement.




F-74


(k) Property and equipment

All property and equipment carried at historical cost less accumulated depreciation are restated to the

equivalent purchasing power at 31 December 2005. Depreciation is calculated over the restatedamounts of property and equipment using the straight-line method to write off the restated cost of

each asset to its residual value over its estimated useful life, as follows:

Buildings 50 yearsEquipment and vehicles 4 – 16 years

Where the carrying amount of an asset is greater than its estimated recoverable amount (‘‘higher of

net realisable value and value in use’’), it is written down immediately to its recoverable amount.

Gains and losses on disposal of property and equipment are determined by reference to their carryingamount and are taken into account in determining operating profit.

Expenditure for the repair and renewal of property and equipment is charged against income. It is,

however, capitalised if it results in an enlargement or substantial improvement of the respective assets.

(l) Intangible assets

Acquired computer software licenses are capitalised on the basis of the costs incurred to acquire and

bring to use the specific software. These costs are amortised on the basis of the expected useful lives

(not exceeding a period of five years). These assets are accounted for intangible assets in these

financial statements.

(m) Taxation on income

According to Act number 3332 and article 4/b of Act number 3659, dated 25 March 1987 and 26

September 1990, respectively, the Bank is exempt from Corporate Tax. Due to the 3rd Article of Act

number 3659, the above mentioned exemption became valid from 1 January 1988. Accordingly,

deferred tax is not calculated and reflected to these financial statements.

(n) Employment termination benefits

Employment termination benefits (‘‘ETB’’) represent the present value of the estimated total reservefor the future probable obligation of the Bank arising from the retirement of the employees,

calculated in accordance with the Turkish Labor Law (Note 16).

(o) Provisions

Provisions are recognised when the Bank has a present legal or constructive obligation as a result of

past events, it is probable that an outflow of resources embodying economic benefits will be required

to settle the obligation, and a reliable estimate of the amount of the obligation can be made.

(p) Offsetting

Financial assets and liabilities are offset and the net amount is reported in the balance sheet when

there is a legally enforceable right to set off the recognised amounts and there is an intention to settle

on a net basis, or to realise the asset and settle the liability simultaneously.

(q) Other credit related commitments

In the normal course of business, the Bank enters into other credit related commitments including

loan commitments and guarantees. These are reported as off-balance sheet items at their notional

amounts and are assessed using the same criteria as loans and advances. Specific provisions are

therefore established when losses are considered probable and recorded as other liabilities (Note 22).




F-75


(r) Reporting of cash flows

For the purposes of cash flow statement, cash and cash equivalents include cash, due from banks,

trading securities and investment securities with original maturity periods of less than three months(Note 5).

(s) Related parties

For the purpose of these financial statements the shareholders of the Bank together with state-

controlled entities in Turkey are considered and referred to as related parties (Note 23).

(t) Comparatives

Where necessary, comparative figures have been reclassified to conform to changes in presentation inthe current year.

NOTE 3 – FINANCIAL RISK MANAGEMENT

(a) Strategy in using financial instruments

As of 31 December 2010, the loan portfolio of the Bank constitutes 66% (2009: 60%) of total assets.

In short, medium and long term lending (except for fund sourced and country loans), the Bank is

taking the risk of the Turkish banking system, however medium-to-long term country loans are underthe political risk guarantee of the Turkish Treasury.

The interest rates of the foreign currency denominated liabilities are constant while remaining is

floating. In accordance with its mission, the Bank strives to reflect the cost of its funding to the

foreign currency loans granted. The loans denominated in Turkish Lira are fully funded by equityand in accordance with the Bank’s mission.

The Board of Directors of the Bank sets risk limits and parameters for the transactions having

significant implications for the operations of the Bank.

The objective of the Bank’s asset and liability management and use of financial instruments is to limit

the Bank’s exposure to liquidity risk, interest rate risk and foreign exchange risk, while ensuring that

the Bank has sufficient capital adequacy.

(b) Credit risk

According to article numbered 25 of the decree (regulating the ‘‘Articles of Association’’ of the Bank)

of the Council of Ministers dated 17 June 1987; the scope of the annual operations of the Bank is

determined by the Bank’s Annual Program that is approved by Supreme Advisory and Credit

Guidance Committee (‘‘SCLGC’’). SCLGC is chaired by the Prime Minister or State Minister

appointed by the Prime Minister and includes executive managers. The Board of Directors of the

Bank is authorised to allocate the risk limits of loan, guarantee and insurance premium to country,

sector and commodity groups, within the principles set by the Annual Program.

In accordance with the collateralisation policy of the Bank, the Bank is taking the risks of short term

loans to domestic banks. The cash and non-cash limits of domestic banks for short term and medium

and long term credits are approved by the Board of Directors.

Short term export loans and foreign currency earning services are granted to companies upon the

approval of the Loan Committee of the Bank. This authorisation is limited to 1% of the equity of

the Bank.

The risk limits of the foreign country loans are determined by annual programs which are approved

by SCLGC within the foreign economic policy.

Country loans are granted with the approval of the Board of Directors and the approval of the

Minister and the Council of Ministers, according to article 10 of Act number 4749 dated 28 March

2002 related to the regulation of Public Finance and Debt Management.




F-76


The fundamental collateral of the foreign country loans are the government guarantee of the counter

country and the guarantee of banks that the Bank accepts as accredited.

The limit of a country is restricted by both ‘‘maximum limit that can be undertaken’’ and ‘‘maximum

amount that can be used annually’’.

Each year major portion of the commercial and politic risks emerged in Short Term Export Insurance

Program is transferred to international reinsurance companies under renewed agreements.

According to the Article 4/C of Act number 3332 that was appended by Act number 3659 and Act

regarding the regulation of Public Financing and Debt Management dated 28 March 2002, the losses

incurred by the Bank in its credit, guarantee and insurance transactions as a result of political risks

are covered by the Turkish Treasury.

The Bank reviews reports of OECD country risk groupings, reports of the members of the

International Union of Credit and Investment Insurers, reports of independent credit rating

institutions and the financial statements of the banks risks of which are undertaken during the

assessment and review of the loans granted. In addition, country reports and short term country risk

classifications prepared within the Bank are also utilised.

The risks and limits of companies and banks are followed by both loan and risk departments on a

weekly and monthly basis.

In addition, all of the foreign exchange denominated operations and other derivative transactions of

the Bank are carried out under the limits approved by the Board of Directors.

Business and geographic distribution of the loan risks runs parallel with the export composition ofTurkey and this is followed up by the Bank regularly.


The Bank reviews its loan portfolios to assess impairment on quarterly basis. In determining whether

an impairment loss should be recorded in the income statement, the Bank makes judgments as towhether there is any observable data indicating that there is a measurable decrease in the estimated

future cash flows from a portfolio of loans before the decrease can be identified with an individual

loan in that portfolio. This evidence may include observable data indicating that there has been an

adverse change in the payment status of borrowers in a group, or national or local economic

conditions that correlate with defaults on assets in the group. The Bank uses estimates based on

historical loss experience for assets with credit risk characteristics and objective evidence of

impairment similar to those in the portfolio when scheduling its future cash flows. The methodology

and assumptions used for estimating both the amount and timing of future cash flows are reviewedregularly to reduce any differences between loss estimates and actual loss experience.

In line with the mission of the Bank, the Bank grants loans only to corporate customers and follows

its credit portfolio under categories specified below:


Corporate

Loans

Personnel

Loans

Corporate

Loans

Personnel

Loans

Standard loans and advances ....................... 4,152,033 2,591 3,901,080 3,426

Loans and advances under close monitoring 4,514 — 4,160 —

Impaired loans and advances ....................... 120,776 — 103,498 —

Total loans and advances to customers .......... 4,277,323 2,591 4,008,738 3,426

Allowance for loan losses ............................. (173,639) — (157,738) —

Net loans and advances to customers............. 4,103,684 2,591 3,851,000 3,426




F-77


As of 31 December 2010 and 2009, there are no past due loans and advances classified under

standard loans and the details of the loans and advances under close monitoring are as follows:

31 December

2010

31 December

2009

Past due up to 30 days.................................................................................. 4,479 1,351

Past due 30-60 days....................................................................................... 8 605

Past due 60-90 days....................................................................................... 27 2,204

Total loans and advances under close monitoring ........................................... 4,514 4,160

As of 31 December 2010 and 2009, the fair value of collaterals held for loans and advances to

customers are as follows:

31 December

2010

31 December

2009

Loans and advances under close monitoring ................................................ 9,047 7,793

Loans and advances under legal follow-up................................................... 599,140 575,666

Total .............................................................................................................. 608,187 583,459

As of 31 December 2010, the Bank does not have repossessed collateral (2009: None).

Bank’s credit rating system

The risk assessment of banks and other financial institutions

The Bank requests independent auditor’s report (financial statements and notes) and net foreign

currency position from banks and other financial institutions on a quarterly basis.

Financial statement information derived from the independent audit or review reports of banks and

other financial institutions is recorded into a database in a standard format and percentage changes

and ratios related with the capital adequacy, asset quality, liquidity and profitability of the banks and

other financial institutions are calculated. In addition, the standard ratios for capital adequacy, asset

quality, liquidity and profitability ratios are redefined periodically considering the operations of the

banking groups and acceptable intervals for standards ratios are defined.

In accordance with the standard ratios, the financial analysis groups are defined by assigning grades

from 1 to 4 to banks and other financial institutions. Group with grade 1 consists of the lowest risk

profile of banks and financial institutions and group with grade 4 consists of the highest risk profileof banks and financial institutions.

In accordance with the financial analysis group of the banks and other financial institutions, the finalrisk groups are determined by considering qualitative factors such as shareholding structure, group

companies, credit ratings from international credit rating institutions, quality of management and also

information obtained from media.




F-78


As of 31 December 2010, loans granted by the Bank to banks and other financial institutions amount

to TL2,058,430 thousand (2009: TL1,934,678 thousand). As of 31 December 2010 and 2009, the

concentration level of the loans and advances to customers in accordance with the defined financial

analysis groups of the Bank are as follows:

Rating

Class

31 December 2010Concentration level

(%)

31 December 2009Concentration level

(%)

Low...................................................... 1-2 22 51

Medium................................................ 3 33 33

High ..................................................... 4 45 16

The risk assessment of the companies:

In the risk evaluation of the companies, the Bank obtains financial and organisational information

both from the companies and also from various sources (such as Central Bank of the Republic of

Turkey (‘‘CBRT’’) records, Trade Registry Gazette, Chamber of Trade records, information obtained

from the Undersecretariat of Foreign Trade, banks and companies operating in the same sector) and

uses comprehensive investigation and verification methods. In addition to the analysis of the last three

year financial statements of the companies, the Bank also analyses the current status of the sectors in

which the companies operate, economic and political changes affecting the target sectors in the

international markets, the advantages and disadvantages of the companies compared to their rivalcompanies operating in or outside Turkey. In case the company is a member of a group of

companies not organised as a holding company, the developments that affect the group’s operations

are monitored and outstanding bank debts of the group are also assessed and company analysis

reports are prepared taking into account the group risk as well. The Bank does not utilise a separate

rating system regarding the risk assessment of the companies.

As of 31 December 2010 and 2009, the classification and allowance percentages of the loans and

advances of the Bank are as follows:


Loans and

advances

Allowance

for loan

losses

Loans and

advances

Allowance

for loan

losses

(%) (%) (%) (%)

Standard loans and advances ....................... 97.08 — 97.32 —

Loans and advances under close monitoring 0.10 — 0.10 —

Impaired loans and advances ....................... 2.82 100.00 2.58 100.00

Total.............................................................. 100.00 4.06 100.00 3.93




F-79


The Bank’s maximum exposure to credit risk as of 31 December 2010 and 2009:

31 December

2010

31 December

2009

Credit risk exposures relating to on-balance sheet assets:

Due from banks ............................................................................................ 886,750 2,059,188

Loans and advances to

– Domestic banks and other financial institutions........................................ 1,987,088 1,847,478– Foreign banks and other financial institutions .......................................... 71,342 87,200

– Corporate customers and personnel........................................................... 2,047,845 1,919,748

Trading securities .......................................................................................... 308,488 150,149

Derivative financial instruments.................................................................... 1,885 16,548


– Available-for-sale ....................................................................................... 15,202 13,744

– Held-to-maturity ........................................................................................ 891,703 309,068

Other assets ................................................................................................... 5,087 6,139

Credit risk exposures relating to off-balance sheet items:

Guarantees and warranties............................................................................ 1,078,703 841,152

Commitments ................................................................................................ 2,000 15,523

Total .............................................................................................................. 7,296,093 7,265,937

As of 31 December 2010 and 2009, the geographical distribution of the on-balance sheet assets

exposed to credit risk;

Turkey

EU

Countries

OECD

Countries(*) USA

Other

Countries Total

Due from banks ........................ 579,943 306,450 229 128 — 886,750


– Domestic banks and other

financial institutions............... 1,987,088 — — — — 1,987,088

– Foreign banks and other

financial institutions............... — — — — 71,342 71,342

– Corporate customers and

personnel................................ 2,047,845 — — — — 2,047,845

Trading securities ...................... 308,488 — — — — 308,488

Derivative financial instruments — 1,885 — — — 1,885


– Available-for-sale ................... 15,202 — — — — 15,202

– Held-to-maturity .................... 891,703 — — — — 891,703

Other assets ............................... 5,087 — — — — 5,087

As of 31 December 2010 ............ 5,835,356 308,335 229 128 71,342 6,215,390

As of 31 December 2009 ............ 5,654,583 578,233 34,339 54,907 87,200 6,409,262

(*) The OECD countries except for EU countries, Canada and USA.




F-80


As of 31 December 2010 and 2009, the sectoral distribution of the on-balance sheet assets exposed to

credit risk;

Financial

Institutions Agriculture Manufacturing

Wholesale

and Retail

Trade Construction

Public

Sector Other Personnel Total

Due from banks ................. 886,750 — — — — — — — 886,750



financial institutions........ 1,987,088 — — — — — — — 1,987,088


financial institutions........ 71,342 — — — — — — — 71,342


personnel......................... — 24,076 1,209,845 30,858 754,769 — 25,706 2,591 2,047,845

Trading securities ............... — — — — — 308,488 — — 308,488

Derivative financial

instruments...................... 1,885 — — — — — — — 1,885


– Available-for-sale ............ 15,202 — — — — — — — 15,202

– Held-to-maturity ............. — — — — — 891,703 — — 891,703

Other assets ........................ 1,464 — 3,302 321 — — — — 5,087

As of 31 December 2010 ..... 2,963,731 24,076 1,213,147 31,179 754,769 1,200,191 25,706 2,591 6,215,390

As of 31 December 2009 ..... 4,026,469 15,136 1,255,025 33,726 514,537 459,217 101,726 3,426 6,409,262

(c) Market risk

The Bank marks to market all its Turkish lira and foreign currency marketable security positions as aresult of its daily financial activities in order to be able to hedge market risk. In order to limit any

possible losses from market risk, the Bank applies a maximum daily transaction and stop/loss limits

for all trading Turkish lira and foreign currency transactions including marketable security

transactions; such limits are approved by the Board of Directors.

The Bank calculates the amount subject to market risk, including ‘‘Currency Risk’’ and ‘‘Interest

Rate Risk (the Bank does not carry common stock position) in accordance with ‘‘Communique

Related to Market Risk Measurement by Standard Method’’ (‘‘Standard Method’’) issued by the

BRSA. In accordance with such method, currency risk is calculated on a daily basis and market risk

including both ‘‘currency risk’’ and ‘‘interest risk’’ is calculated on a monthly basis.

Although the Bank carries a limited currency position (close to closed position) in accordance with

the general currency policy of the Bank, there exists capital requirement for the currency risk position

of the Bank under the Standard Method; the rationale behind this capital requirement is the absenceof reinsurance over the non-cash commitments of the Bank mainly due to the structure of the Short-

term Export Credit Insurance Programme.

Sensitivity Tests

In accordance with the mission of the Bank, the Bank does not follow a profit oriented strategy but

rather follows a strategy aiming to avoid the eroding effects of inflation on the share capital by

making reasonable amount of profit. Under this framework, necessary changes to loan interest rates

are made considering the changes in cost of funds and market interest rates; changes in the interestrates are made using the expected year-end inflation levels as break-even point considering the return

on equity at the same time. In this context, the sensitivity analysis are also prepared under various

scenarios (optimist, pessimist and normal) and also under abnormal fluctuation (stress) assumptions

which measure the sensitivity of the net profit to the changes in market interest rates and the Bank’s

loan interest rates. Moreover, possible losses arising from interest rate and foreign exchange risk are

calculated under various scenarios and in order to minimize possible losses, the Bank undertakes

swap transactions (especially money and interest swaps).




F-81


The average market risk table of calculated market risk during the month ends as of 31 December

2010 and 2009, as per the statutory financial statements prepared for BRSA reporting purposes within

the scope of ‘‘Regulation on Measurement and Assessment of Capital Adequacy of Banks’’ published

in Official Gazette no.26333 dated 1 November 2006, are as follows:


Average Maximum Minimum Average Maximum Minimum

Interest Rate Risk................................ 3,781 5,371 3,097 3,343 3,765 1,999

Equity Share risk ................................. — — — — — —

Currency Risk ...................................... 28,184 35,238 22,352 25,923 29,643 22,352

Total Capital to be Employed for

Market Risk (A).............................. 31,965 40,609 25,449 29,266 33,408 24,351

Total Amount Subject to Market

Risk (A*12.5) ................................... 399,562 507,613 318,113 365,825 417,600 304,388

(d) Currency risk

Foreign currency denominated assets and liabilities, together with purchase and sale commitments give

rise to foreign exchange exposure.

The Bank’s foreign exchange position is followed daily, and the transactions are performed in

accordance with the expectations in the market and within the limits determined by the Risk

Management Principles approved by the Board of Directors of the Bank.

The Bank takes on exposure to effects of fluctuations in the prevailing foreign currency exchange

rates on its financial position and cash flows. Included in the table are the Bank’s assets, liabilities

and equity at carrying amounts, categorized by currency.




F-82


The table below summarizes the Bank’s exposure to foreign currency exchange rate risk at

31 December 2010 and 2009.

31 December 2010

US$ EUR JPY Other TL Total

Cash and due from banks........................... 86,336 306,495 229 105 493,606 886,771

Trading securities ........................................ 3,646 — — — 304,842 308,488

Derivative financial instruments ................. 168 — — — 1,717 1,885

Loans and advances to customers .............. 2,039,988 699,839 11,770 6,441 1,348,237 4,106,275


– Available-for-sale ..................................... — — — — 15,202 15,202

– Held-to-maturity ...................................... 50,862 — — — 840,841 891,703

Property and equipment and intangible

assets ....................................................... — — — — 8,494 8,494

Other assets................................................. 1,487 562 — 9 8,690 10,748

Total assets.................................................. 2,182,487 1,006,896 11,999 6,555 3,021,629 6,229,566

Funds borrowed.......................................... 804,071 994,641 — — — 1,798,712

Derivative financial instruments ................. 3,982 — — — 21,182 25,164

Other liabilities............................................ 735,512 1,985 — — 27,195 764,692

Reserve for employment termination

benefits .................................................... — — — — 10,856 10,856

Equity.......................................................... 174 — — — 3,629,968 3,630,142

Total liabilities and equity ........................... 1,543,739 996,626 — — 3,689,201 6,229,566

Net balance sheet position ........................... 638,748 10,270 11,999 6,555 (667,572) —

Off balance sheet derivative instruments net

notional position....................................... (638,076) (10,284) — — 631,120 (17,240)




F-83


At 31 December 2010, assets and liabilities denominated in foreign currency were translated into

Turkish lira using foreign exchange rate of TL1.5416 = US Dollar 1 (‘‘US$’’) and TL2.0568 = EUR1.

31 December 2009


Cash and due from banks........................... 68,656 578,095 2,130 2,964 1,407,352 2,059,197

Trading securities ........................................ 3,332 — — — 146,817 150,149

Derivative financial instruments ................. — — 8,692 — 7,856 16,548

Loans and advances to customers .............. 1,973,513 588,862 5,133 5,318 1,281,600 3,854,426



– Held-to-maturity ...................................... 49,664 — — — 259,404 309,068


assets ....................................................... — — — — 9,098 9,098

Other assets................................................. 2,248 278 — 8 12,345 14,879

Total assets.................................................. 2,097,413 1,167,235 15,955 8,290 3,138,216 6,427,109

Funds borrowed.......................................... 763,900 1,216,634 45,350 — — 2,025,884

Derivative financial instruments ................. 5,186 — — — 103 5,289



benefits .................................................... — — — — 9,963 9,963

Equity.......................................................... 275 — — — 3,656,928 3,657,203

Total liabilities and equity ........................... 1,457,052 1,226,751 45,350 — 3,697,956 6,427,109

Net balance sheet position ........................... 640,361 (59,516) (29,395) 8,290 (559,740) —

Off balance sheet derivative instruments net

notional position....................................... (620,693) 42,942 35,361 — 561,014 18,624

At 31 December 2009, assets and liabilities denominated in foreign currency were translated intoTurkish lira using foreign exchange rate of TL1.4900 = US$1 and TL2.1471 = EUR1.

As of 31 December 2010 and 2009, the effect of the devaluation of TL by 10% against other

currencies with all other variables held constant, on net profit and equity of the Bank, is as follows:


Effect on

Net Profit

Effect on

Equity(*)Effect on

Net Profit

Effect on

Equity(*)

US$ ............................................................... 4,183 4,200 10,598 10,625

EUR.............................................................. 1,027 1,027 (5,952) (5,952)

JPY ............................................................... 1,200 1,200 (2,940) (2,940)

Other currencies............................................ 656 656 829 829

Total.............................................................. 7,066 7,083 2,535 2,562

(*) Effect on equity also includes effect on net income.




F-84


As of 31 December 2010 and 2009, the effect of the appreciation of TL by 10% against other

currencies with all other variables held constant, on net profit and equity of the Bank is the same as

the total amount with a negative sign as presented in the above table.

(e) Interest rate risk

The Bank estimates the effects of the changes in interest rates over the profitability of the Bank by

analyzing TL and foreign currency denominated interest rate sensitive assets and liabilities considering

both their interest components as being fixed rate or variable rate and also analyzing their weights

among the Bank’s total assets and liabilities. Long or short positions arising from interest rate risk

are determined by currency types at the related maturity intervals (up to 3 months, 3 months to 1

year, 1 year to 5 years and over 5 years) as of the period remaining to repricing date, considering the

repricing of TL and foreign currency-denominated interest sensitive assets and liabilities at maturity

date (for fixed rate) or at interest payment dates (for floating rate). By classifying interest sensitiveassets and liabilities according to their repricing dates, Bank’s exposure to possible variations in

market interest rates are determined.

The Bank determines maturity mismatches of assets and liabilities by analyzing the weighted average

days to maturity of TL and foreign currency-denominated (for each currency and in total in terms of

their US$ equivalents) assets and liabilities.

According to the Risk Management Policy approved by the Board of Directors, the Bank emphases

the matching of assets and liabilities with fixed and floating interest rates and under different

currencies and also pays special attention to the level of maturity mismatch of assets and liabilities

with floating and fixed interest rates in relation to the asset size of the Bank in order to limit the

negative effects of interest rate changes on the Bank’s profitability.

As of 31 December 2010 and 2009, the tables below summarize the Bank’s assets and liabilities in

carrying amounts classified in terms of periods remaining to contractual repricing dates;

31 December 2010

Up to

3 months

3 months

to 1 year

1 year to

5 years

Over

5 years

Non-

interest

bearing Total

Cash and due from banks ............................. 883,681 — — — 3,090 886,771

Trading securities .......................................... — 138,691 166,152 3,645 — 308,488

Derivative financial instruments.................... 1,885 — — — — 1,885

Loans and advances to customers................. 1,809,870 2,257,586 38,819 — — 4,106,275


– Available-for-sale ....................................... — — — — 15,202 15,202

– Held-to-maturity ........................................ 489,206 285,976 116,521 — — 891,703


assets .......................................................... — — — — 8,494 8,494

Other assets ................................................... — — — — 10,748 10,748

Total assets .................................................... 3,184,642 2,682,253 321,492 3,645 37,534 6,229,566

Funds borrowed ............................................ 1,605,707 193,005 — — — 1,798,712

Derivative financial instruments.................... 24,887 277 — — — 25,164

Other liabilities .............................................. 81,208 568,491 — — 114,993 764,692

Reserve for employment termination benefits — — — — 10,856 10,856

Total liabilities ............................................... 1,711,802 761,773 — — 125,849 2,599,424

Net repricing gap ........................................... 1,472,840 1,920,480 321,492 3,645 (88,315) 3,630,142




F-85


31 December 2009

Up to

3 months

3 months

to 1 year

1 year

to 5 years

Over

5 years

Non-

interest

bearing Total

Cash and due from banks........................... 2,054,795 — — — 4,402 2,059,197

Trading securities ........................................ 45,677 23,089 78,050 3,333 — 150,149

Derivative financial instruments ................. 16,287 261 — — — 16,548

Loans and advances to customers .............. 1,773,344 2,077,818 3,264 — — 3,854,426



– Held-to-maturity ...................................... 207,922 51,131 19,024 30,991 — 309,068


assets ....................................................... — — — — 9,098 9,098

Other assets................................................. — — — — 14,879 14,879

Total assets.................................................. 4,098,025 2,152,299 100,338 34,324 42,123 6,427,109

Funds borrowed.......................................... 689,306 1,336,578 — — — 2,025,884

Derivative financial instruments ................. 4,647 642 — — — 5,289



benefits .................................................... — — — — 9,963 9,963

Total liabilities............................................. 771,959 1,884,570 — — 113,377 2,769,906

Net repricing gap ......................................... 3,326,066 267,729 100,338 34,324 (71,254) 3,657,203

The tables below summaries the range for effective average interest rates by major currencies for

monetary financial instruments of the Bank at 31 December:

31 December 2010

US$ EUR JPY TL

(%) (%) (%) (%)

AssetsCash and due from banks

– Time deposits in foreign banks ................. 0.44 0.6 — —

– Time deposits in domestic banks............... — — — 6.43

– Interbank money market placements ........ — — — —

Trading securities.......................................... 7.05 — — 8.35

Derivative financial instruments ................... — — — —

Loans and advances to customers ................ 2.68 3.16 3.22 8.49

Investment securities– Held-to-maturity........................................ 6.56 — — 7.52

Liabilities

Funds borrowed ........................................... 1.33 2.62 — —




F-86


31 December 2009

US$ EUR JPY TL

(%) (%) (%) (%)

Assets


– Time deposits in foreign banks ................. 0.12 0.34 0.50 —


– Interbank money market placements- ....... — — — 6.50


Derivative financial instruments ................... — — 2.26 —Loans and advances to customers ................ 3.43 4.30 2.87 13.79


– Held-to-maturity........................................ 6.56 — — 10.35

LiabilitiesFunds borrowed ........................................... 2.57 3.69 2.03 —

As of 31 December 2010 and 2009, the effect of the change in interest rates by (+) 1% and (-) 1%

with all other variables held constant, on current year net profit of the Bank is as follows:


(+) 1% (-) 1% (+) 1% (-) 1%

Gain/(Loss)

Effect

Gain/(Loss)

Effect

Gain/(Loss)

Effect

Gain/(Loss)

Effect

TL ................................................................. (3,101) 2,728 (1,221) 1,030

US$ ............................................................... 3,167 (3,172) 2,606 (3,002)

EUR.............................................................. 496 (207) (1,646) 1,643

Other foreign currencies ............................... 46 (50) 28 (28)

Total effect .................................................... 608 (701) (233) (357)

(f) Liquidity risk

A major objective of the Bank’s asset and liability management is to ensure that sufficient liquidity is

available to meet the Bank’s commitments and to satisfy the Bank’s own liquidity needs. The Bank

measures and manages its cash flow commitments on a daily basis, and maintains liquid assets

determined by the Board of Directors which it judges sufficient to meet its commitments.

The matching and controlled mismatching of the maturities and interest rates of assets and liabilities

is fundamental to the liquidity management of the Bank. The ability to fund the existing and

prospective debt requirements is managed by maintaining sufficient cash and marketable securities, theavailability of funding through an adequate amount of committed credit lines and the ability to close

out market positions. It is unusual for banks ever to be completely matched since the maturity,

interest rates and the types of business transactions are different. An unmatched position potentially

enhances profitability, but also increases the risk of losses. The maturities of assets and liabilities and

the ability to replace, at an acceptable cost, interest-bearing liabilities as they mature, are important

factors in assessing the liquidity of the Bank and its exposure to changes in interest rates and

exchange rates.

The Bank uses the TL and foreign currency cash flow schedules prepared weekly, monthly and

annually cash in the decision making process of the liquidity management.




F-87


As of 31 December 2010 and 2009, the table below analyses the assets and liabilities of the Bank into

relevant maturity groupings based on the remaining period at balance sheet date to the contractual

maturity dates.

31 December 2010

Demand

and up to

3 months

3 months

to 1 year

1 year to

5 years

Over

5 years

No

maturity Total

Cash and due from banks........................... 883,681 — — — 3,090 886,771

Trading securities ........................................ — 138,690 166,152 3,646 — 308,488

Derivative financial instruments ................. 1,885 — — — — 1,885

Loans and advances to customers .............. 1,462,815 2,361,072 276,548 5,840 — 4,106,275



– Held-to-maturity ...................................... 355,919 273,898 190,874 71,012 — 891,703


assets ...................................................... — — — — 8,494 8,494

Other assets................................................. — — — — 10,748 10,748

Total assets.................................................. 2,704,300 2,773,660 633,574 80,498 37,534 6,229,566

Funds borrowed.......................................... 599,643 840,263 133,064 225,742 — 1,798,712

Derivative financial instruments ................. 21,182 277 3,705 — — 25,164



benefits ................................................... — — — — 10,856 10,856

Total liabilities............................................. 702,033 1,409,031 136,769 225,742 125,849 2,599,424

Net liquidity gap .......................................... 2,002,267 1,364,629 496,805 (145,244) (88,315) 3,630,142




F-88


31 December 2009

Demand

and up to

3 months

3 months

to 1 year

1 year to

5 years

Over

5 years

No

maturity Total

Cash and due from banks........................... 2,054,795 — — — 4,402 2,059,197

Trading securities ........................................ 45,677 23,089 78,050 3,333 — 150,149

Derivative financial instruments ................. 7,596 8,952 — — — 16,548

Loans and advances to customers .............. 1,520,708 2,118,524 207,358 7,836 — 3,854,426



– Held-to-maturity ...................................... 138,896 57,389 81,792 30,991 — 309,068


assets ...................................................... — — — — 9,098 9,098

Other assets................................................. — — — — 14,879 14,879

Total assets.................................................. 3,767,672 2,207,954 367,200 42,160 42,123 6,427,109

Funds borrowed.......................................... 509,954 1,131,100 177,630 207,200 — 2,025,884

Derivative financial instruments ................. 1,614 960 266 2,449 — 5,289



benefits ................................................... — — — — 9,963 9,963

Total liabilities............................................. 589,574 1,679,410 177,896 209,649 113,377 2,769,906

Net liquidity gap .......................................... 3,178,098 528,544 189,304 (167,489) (71,254) 3,657,203




F-89


The undiscounted cash flows of the financial liabilities of the Bank into relevant maturity grouping

based on the remaining period at 31 December 2010 and 2009 to the contractual maturity dates are

presented in the tables below:

31 December 2010

Demand and

up to

3 months

3 months

to 1 year

1 year

to 5 years

Over

5 years No maturity Total

Funds borrowed ........ 220,593 1,266,100 130,959 257,250 — 1,874,902

Other liabilities .......... 102,390 568,767 3,706 — 125,849 800,712

Total liabilities ........... 322,983 1,834,867 134,665 257,250 125,849 2,675,614

31 December 2009

Demand and

up to

3 months

3 months

to 1 year

1 year

to 5 years

Over

5 years No maturity Total

Funds borrowed ........ 513,266 1,163,798 222,421 229,541 — 2,129,026

Other liabilities .......... 79,620 548,310 266 2,449 113,377 744,022

Total liabilities ........... 592,886 1,712,108 222,687 231,990 113,377 2,873,048

The undiscounted cash inflows and outflows of derivative transactions of the Bank at 31 December2010 and 2009 are presented in the tables below:

31 December 2010

Up to

3 months

3 months

to 1 year

1 year

to 5 years

Over

5 years Total

Derivatives held for trading:

Foreign exchange

derivatives:

– Outflow.............................. 668,431 29,800 — — 698,231– Inflow ................................ 661,972 — — — 661,972

Interest rate derivatives:

– Outflow.............................. 570 953 5,450 — 6,973

– Inflow ................................ 1,232 1,856 7,941 — 11,029

Total outflow ......................... 669,001 30,753 5,450 — 705,204

Total inflow ........................... 663,204 1,856 7,941 — 673,001




F-90


31 December 2009

Up to

3 months

3 months

to 1 year

1 year

to 5 years

Over

5 years Total


Foreign exchange

derivatives:

– Outflow.............................. 563,861 29,800 — — 593,661

– Inflow ................................ 573,206 30,750 — — 603,956


– Outflow.............................. 8,266 22,944 9,633 1,026 41,869

– Inflow ................................ 9,747 28,238 7,833 1,070 46,888

Total outflow ......................... 572,127 52,744 9,633 1,026 635,530

Total inflow ........................... 582,953 58,988 7,833 1,070 650,844

(g) Operational risk

Operational risk is the risk of loss due to human or system errors, incompatibility or failure of

internal business processes, or external events.

The Bank seeks to minimize losses from operational risk by establishing effective internal control

systems which prevent or detect all errors and situations which might cause loss through failure of

people or processes in such a way that losses are avoided or reduced to the minimum possible extent.

The Bank has established internal control mechanisms in order to be able to manage the operational

risks and these mechanisms are audited by the internal audit and inspection unit of the Bank.

Financial losses occurring as a result of the operational risk together with the underlying reasons are

reported to the Audit Committee, top management and the Board of Directors by the Risk

Management Department and necessary actions are taken according to the decision given by theBoard of Directors.

For the regulatory purposes and consideration in statutory capital adequacy ratio, the Bank calculatesthe amount subject to operational risk based the on last 3 years’ gross income of the Bank for the

years ended 2009, 2008 and 2007 with the basic indicator method in accordance with the ‘‘The

Calculation of the Amount Subject to Operational Risk’’ Arrangement under the ‘‘Regulation

Regarding Measurement and Evaluation of Banks’ Capital Adequacy Ratio’’ published in the Official

Gazette No. 26333 dated 1 November 2006. As of 31 December 2010, the total amount subject to

operational risk is calculated as TL857,835 thousand (2009: TL817,780 thousand).

(h) Fair value of financial instruments

Fair value is the amount at which a financial instrument could be exchanged in a current transaction

between willing parties, other than in a forced sale or liquidation, and is best evidenced by a quotedmarket price, if one exists.

The estimated fair values of financial instruments have been determined by the Bank using availablemarket information and appropriate valuation methodologies. However, judgment is necessarily

required to interpret market data to develop the estimated fair value. Accordingly, the estimates

presented herein are not necessarily indicative of the amounts the Bank could realize in a current

market exchange.

A market does not presently exist for term loans which would facilitate obtaining prices for

comparative instruments, and if sold or settled prior to their stated maturity dates, these instruments

would bear transaction costs in the form of fees or discounts. Accordingly, fair value has not been




F-91


computed for these instruments and net book amounts are considered to be a reasonable estimate of

the fair value. Balances denominated in foreign currencies are translated at year-end exchange rates.

The following methods and assumptions were used to estimate the fair value of the Bank’s financial

instruments:

(i) Financial assets

The fair values of certain financial assets carried at cost, including cash and due from banks

(including receivables from CBRT) are considered to approximate their respective carrying values dueto their short-term nature.

The fair value of investment securities has been estimated based on market prices at balance sheetdates.

Loans and advances to customers are net of provisions for impairment. The estimated fair value ofloans and advances to customers represents the discounted amount of future cash flows at current

market interest rates.

(ii) Financial liabilities

The fair values of funds borrowed are based on market prices or are based on discounted cash flows

using current interest rates prevailing at the balance sheet date.

(iii) Derivative financial instruments

The fair values of foreign exchange and cross-currency swaps have been estimated based on quoted

market rates prevailing at the balance sheet date (Notes 7 and 22).

The following table summarises the carrying amounts and fair values of those financial assets and

liabilities not presented on the Bank’s balance sheet at their fair value.


Carrying

value Fair value

Carrying

value Fair value

Financial assets:

Cash and due from banks ............................ 886,771 886,771 2,059,197 2,059,197


– Held to maturity........................................ 891,703 900,459 309,068 314,519

Loans and advances to customers ................ 4,106,275 4,112,136 3,854,426 3,872,236

Financial liabilities:

Funds borrowed ........................................... 1,798,712 1,809,631 2,025,884 2,032,114




F-92


The following table summarises the fair values of those financial assets and liabilities presented on the

Bank’s balance sheet based on the hierarchy of valuation technique as of 31 December 2010 and

2009.

31 December 2010 Level 1(*) Level 2(**) Level 3(***) Total

Financial assets at fair value through

profit and loss

Financial assets held for trading

– Debt securities................................... 308,488 — — 308,488

– Derivatives ........................................ — 1,885 — 1,885

Available-for-sale financial assets

– Investment securities – equity........... 13,202 — 2,000(****) 15,202

Total assets........................................... 321,690 1,885 2,000(****) 325,575

Financial liabilities at fair value through

profit and loss

Financial liabilities held for trading

– Derivatives ........................................ — 25,164 — 25,164

Total liabilities...................................... — 25,164 — 25,164


Financial assets at fair value through

profit and loss


– Debt securities................................... 150,149 — — 150,149

– Derivatives ........................................ — 16,548 — 16,548


– Investment securities – equity........... 11,744 — 2,000(****) 13,744

Total assets........................................... 161,893 16,548 2,000 180,441

Financial liabilities at fair value through

profit and loss


– Derivatives ........................................ — 5,289 — 5,289

Total liabilities...................................... — 5,289 — 5,289

(*) Fair values are calculated with quoted prices (unadjusted) in active markets for listed equity securities and debt instruments.This level includes listed equity securities and debt instruments on exchanges.

(**) Fair values are calculated with observable input parameters (either directly as prices or indirectly as derived from prices) forderivative transactions. This level includes OTC derivative contracts.

(***) Fair values are calculated with unobservable inputs for equity instruments.

(****) Note 9a.

(i) Capital management

Banks in Turkey are required to comply with capital adequacy guidelines promulgated by the BRSA,

which are based upon the standards established by the Bank of International Settlements (‘‘BIS’’).




F-93


These guidelines require banks to maintain adequate levels of regulatory capital against risk-bearing

assets and off-balance sheet exposures.

A bank’s capital adequacy ratio is calculated by taking the aggregate of its Tier I capital (whichcomprises paid-in capital, reserves, retained earnings and profit for the current period minus period

loss (if any), prepared expenses, leasehold improvements and intangible assets), its Tier II capital

(which comprises general loan and free reserves, revaluation funds and subordinated loans obtained)

and its Tier III capital (which comprises certain qualified subordinated loans in accordance with BIS

guidelines) minus deductions (which comprises participations to financial institutions, special and

preliminary and negative differences between fair and book values of subsidiaries, subordinated loans

extended, goodwill and capitalized costs), and dividing this aggregate by risk weighted assets, which

reflect both credit risk, market risk and operational risk. In accordance with these guidelines, banksmust maintain a total capital adequacy ratio of a minimum of 8%.

The Bank has complied with the minimum capital adequacy ratio requirement, stated above, for the

years ended 31 December 2010 and 2009.

The Bank’s regulatory capital position on at 31 December 2010 and 2009 were as follows:

31 December

2010

31 December

2009

Tier I capital.................................................................................................. 3,656,594 3,682,327

Tier II capital ................................................................................................ 27,970 28,712

Total regulatory capital (A) .......................................................................... 3,684,564 3,711,039

Risk-weighted assets (including market and operational risk) (B) ............... 2,580,167 2,951,717

Capital adequacy ratio (%) (A)/(B) ................................................................ 142.80 125.72

NOTE 4 – CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS IN APPLYING

ACCOUNTING POLICIES

The Bank makes estimates and assumptions that affect the reported amounts of assets and liabilities

within the next financial period. Estimates and judgments are continually evaluated and are based on

historical experience and other factors, including expectations of future events that are believed to be

reasonable under the circumstances.

(a) Impairment losses on loans and advances to customers

The Bank reviews its loan portfolio periodically, to assess impairment. The mentioned assessment

includes the estimation of future cash flows. Management uses estimates based on historical loss

experience for assets with credit risk characteristics and objective evidence of impairment similar to

those in the portfolio when scheduling its future cash flows.

(b) Fair value of derivatives

The fair values of financial instruments that are not quoted in active markets are determined by using

valuation techniques. Where valuation techniques (for example, models) are used to determine fairvalues, they are validated and periodically reviewed by qualified personnel independent of the area

that created them.

(c) Impairment of available-for-sale equity investments

The Bank determines that available-for-sale equity investments are impaired when there has been a

significant or prolonged decline in the fair value below its cost. This determination of what is

significant or prolonged requires judgment. In making this judgment, the Bank evaluates among other




F-94


factors, the normal volatility in share price for listed equity investments. In addition, impairment may

be appropriate when there is evidence of deterioration in the financial health of the investor, industry

and sector performance, changes in technology, and operational and financial cash flows.

(d) Held-to-maturity investments

The Bank follows the guidance of IAS 39 on classifying non-derivative financial assets with fixed or

determinable payments and fixed maturity as held-to-maturity. This classification requires significant

judgment. In making this judgment, the Bank evaluates its intention and ability to hold such

investments to maturity. If the Bank fails to keep these investments to maturity other than for the

specific circumstances – for example, selling an insignificant amount close to maturity – it will be

required to reclassify the entire class as available-for-sale. The investments would therefore bemeasured at fair value not at amortized cost.

NOTE 5 – CASH AND DUE FROM BANKS

31 December

2010

31 December

2009

Cash funds:

Cash on hand ................................................................................................ 21 9

21 9

Current accounts and demand deposits:

CBRT ............................................................................................................ 682 627

Foreign banks................................................................................................ 2,170 3,444Domestic banks ............................................................................................. 218 322

3,070 4,393

Time deposits:Foreign banks................................................................................................ 304,655 647,488

Domestic banks ............................................................................................. 579,025 112,173

883,680 759,661

Interbank money market placements .............................................................. — 1,295,134

Total cash and due from banks ...................................................................... 886,771 2,059,197

Cash and cash equivalents included in the statements of cash flows for the year ended 31 December isas follows:

31 December

2010

31 December

2009

31 December

2008

Cash and due from banks..................................................... 886,771 2,059,197 605,174

Less: interest accruals............................................................ (1,300) (1,052) (1,217)

Less: time deposits with maturities exceeding 3 months ...... (25,000) (9,000) —

Cash and cash equivalents...................................................... 860,471 2,049,145 603,957

Cash and cash equivalents are mainly composed of bank deposits and interbank money market

placements with original maturity periods of less than three months as of 31 December 2010, 2009

and 2008.




F-95


NOTE 6 – TRADING SECURITIES

31 December

2010

31 December

2009

Government bonds........................................................................................ 304,842 117,917

Treasury Bills ................................................................................................ — 28,900

Eurobonds ..................................................................................................... 3,646 3,332

308,488 150,149

There are no securities pledged under repurchase agreements.

As of 31 December 2010, government bonds and treasury bills amounting to TL92,680 thousand(2009: TL64,908 thousand) have been pledged as collateral with the CBRT.

NOTE 7 – DERIVATIVE FINANCIAL INSTRUMENTS

The Bank utilises the following derivative instruments:

‘‘Currency and interest rate swaps’’ are commitments to exchange one set of cash flows for another.

Swaps result in an economic exchange of currencies or interest rates. Currency swaps involve the

exchange of principal as well. The Bank’s ‘‘credit risks’’ represents the potential cost of replacing the

swap contracts if counterparties fail to perform their obligation. This risk is monitored on an ongoing

basis with reference to the current fair value, a proportion of the notional amount of the contracts

and the liquidity of the market. To control the level of credit risk taken, the Bank assessescounterparties using the same techniques as for its lending activities.

The notional amounts of certain types of financial instruments provide a basis for comparison withinstruments recognised on the balance sheet but do not necessarily indicate the amounts of future

cash flows involved or the current fair value of the instruments and, therefore, do not indicate the

Bank’s exposure to credit or price risks. The derivative instruments become favorable (as assets) or

unfavorable (as liabilities) as a result of fluctuations in foreign exchange rates and interest rates. The

aggregate contractual or notional amount of derivative financial instruments on hand, the extent to

which instruments are favorable or unfavorable and, thus the aggregate fair values of derivative

financial assets and liabilities can fluctuate significantly from time to time.

The fair values of derivative instruments held as of 31 December 2010 and 2009 are set out in the

following table:


Fair value Fair value

Assets Liabilities Assets Liabilities

Interest rate swaps purchases and sales........ — (3,982) — (3,356)

Foreign currency swaps purchases and sales 1,885 (21,182) 7,856 (1,614)

Cross currency swaps purchases and sales ... — — 8,692 (319)

Total derivative assets/(liabilities) .................. 1,885 (25,164) 16,548 (5,289)

As also explained in Note 2 (c), even though certain derivative transactions, while providing effective

economic hedges under the Bank’s risk management position, do not qualify for hedge accountingunder the specific rules in IAS 39, and are therefore treated as derivatives held for trading.

The national amounts of derivative transactions are explained in detail in Note 22.




F-96


NOTE 8 – LOANS AND ADVANCES TO CUSTOMERS

31 December

2010

31 December

2009

Short-termFinancial institutions ..................................................................................... 1,723,748 1,812,309

Export guaranteed loans ............................................................................... 394,108 469,616

Fund sourced loans (Note 15)....................................................................... 640,937 600,615

Foreign country loans (political risks) .......................................................... — 14,718

Specialised loans............................................................................................ 9,870 29,018

Discount loans............................................................................................... 687,310 602,312

Other guaranteed loans ................................................................................. 40,712 56,360

3,496,685 3,584,948

Medium and long-term

Financial institutions ..................................................................................... 263,340 35,169

Export guaranteed loans ............................................................................... 211,300 108,587Foreign country loans (political risks) .......................................................... 71,342 72,482

Specialized loans............................................................................................ 6,159 3,681

Export guaranteed investment loans ............................................................. 11,222 12,876

Other ............................................................................................................. 94,576 86,763

657,939 319,558

Performing loans ............................................................................................ 4,154,624 3,904,506

Loans under close monitoring....................................................................... 4,514 4,160

Impaired loans and advances ........................................................................ 120,776 103,498

Gross loans and advances to customers .......................................................... 4,279,914 4,012,164

Allowance for loan losses.............................................................................. (173,639) (157,738)

Net loans and advances to customers ............................................................. 4,106,275 3,854,426

The Bank provides 100% impairment provision for non-performing loans amounting to TL120,776

thousand (2009: TL103,498 thousand) comprising 2.82% (2009: 2.58%) of the total loans outstanding

at 31 December 2010. The Bank also provided an additional impairment provision amounting to

TL52,863 thousand (2009: TL54,240 thousand) for other components of the loan portfolio to cover

the inherent risk of loss present in the lending relationship.

Movements in the provision for loan losses for the years ended 31 December 2010 and 2009 are as

follows:

2010 2009

Balance at the beginning of the year 157,738 106,992Recoveries (Note 20) ..................................................................................... (3,488) (1,593)

Provision for the year.................................................................................... 19,389 52,339

Balance at the end of the year ....................................................................... 173,639 157,738




F-97


Loans and advances to the public and private sector are as follows:

31 December

2010

31 December

2009

Public sector .................................................................................................. 374,549 366,687

Private sector ................................................................................................. 3,905,365 3,645,477

4,279,914 4,012,164

NOTE 9 – INVESTMENT SECURITIES

(a) Available-for-sale securities:

31 December

2010

31 December

2009

Equity securities

– Listed.......................................................................................................... 13,202 11,744

– Unlisted ...................................................................................................... 2,000 2,000

Total available-for-sale securities ................................................................... 15,202 13,744

There are no securities pledged under repurchase agreements or pledged as collateral with financial

institutions.

As explained in Note 2 (d) unrealised gain and losses arising from changes in the fair value of

securities classified as ‘‘available-for-sale’’ are recognised as ‘‘other reserves’’ in the shareholders’

equity unless there is a permanent decline in the fair values of such assets, which are charged to the

income statement.

The breakdown of available-for-sale equity securities at 31 December 2010 and 2009 are as follows:

Share % Carrying Amount

Equity securities 2010 2009 2010 2009 Business

Garanti Faktoring

Hizmetleri A.S. ........... 9.78 9.78 13,202 11,744 Faktoring

Kredi Garanti Fonu A.S. 1.66 1.66 2,000 2,000 Financial services

15,202 13,744

(b) Held-to-maturity securities:

31 December

2010

31 December

2009

Debt Securities

– Government Bonds .................................................................................... 747,757 217,855

– Eurobonds .................................................................................................. 50,862 49,664

– Treasury Bills ............................................................................................. 93,084 41,549

Total held-to-maturity securities .................................................................... 891,703 309,068




F-98


As of 31 December 2010, government bonds and treasury bills amounting to TL156,815 thousand

(2009: TL165,504 thousand) have been pledged as collateral with the CBRT and Istanbul Stock

Exchange-Settlement and Custody Bank.

The movement of held-to-maturity securities for the years ended 31 December 2010 and 2009 are as

follows:

2010 2009

Balance at 1 January 309,068 242,481

Purchases ....................................................................................................... 1,115,881 224,736

Redemptions.................................................................................................. (537,579) (157,516)

Foreign exchange difference.......................................................................... 509 (2,823)Interest income accruals ................................................................................ 3,824 2,190

Balance at 31 December................................................................................. 891,703 309,068

NOTE 10 – PROPERTY AND EQUIPMENT

Land and

Buildings Vehicles

Other

tangibles Total

At 1 January 2009

Cost............................................................... 17,134 553 9,659 27,346Accumulated depreciation (-) ....................... 9,122 538 8,954 18,614

Net book amount........................................... 8,012 15 705 8,732

Year ended 31 December 2009Opening net book amount............................ 8,012 15 705 8,732

Additions ...................................................... — — 405 405

Depreciation charge (-) ................................. 322 15 356 693

Closing net book amount ............................... 7,690 — 754 8,444

At 31 December 2009

Cost............................................................... 17,134 553 10,064 27,751

Accumulated depreciation (-) ....................... 9,444 553 9,310 19,307

Net book amount........................................... 7,690 — 754 8,444

Year ended 31 December 2010

Opening net book amount............................ 7,690 — 754 8,444

Additions ...................................................... — — 65 65

Depreciation charge (-) ................................. 309 — 96 405


At 31 December 2010

Cost............................................................... 17,134 553 10,129 27,816


Net book amount........................................... 7,381 — 723 8,104




F-99


NOTE 11 – INTANGIBLE ASSETS

31 December

2010

31 December

2009

Rights

Opening net book amount ............................................................................ 654 7

Additions(*).................................................................................................... 7 801

Disposals ....................................................................................................... — —

Amortisation charge (-) ................................................................................. 271 154

Net book amount ........................................................................................... 390 654

Rights

Cost ............................................................................................................... 1,189 1,182

Accumulated amortisation (-) ....................................................................... 799 528

Net book amount ........................................................................................... 390 654

(*) As of 31 December 2009, additions represents computer software purchases.

NOTE 12 – OTHER ASSETS

31 December2010

31 December2009

Receivables from Development and Support Fund...................................... 7,505 7,254

Insurance premiums receivables .................................................................... 3,409 3,827

Upfront fees paid for syndicated borrowings ............................................... 4,700 8,186

Receivables from reinsurance companies ...................................................... 699 1,265

Other ............................................................................................................. 1,940 1,601

18,253 22,133Provision for impairment on other assets ..................................................... (7,505) (7,254)

10,748 14,879

As at 31 December 2010, US$447,071 (TL689 thousand, 2009: TL666 thousand) receivable from the

Development and Support Fund is due to the incomplete payment of General Headquarters of

Gendarme regarding the military equipment purchases. Rest of the receivables from the Development

and Support Fund, amounting to US$4,421,357 (TL6,816 thousand, 2009: TL6,588 thousand), arisesfrom the exchange losses due to the late transfer of the funds to the Bank from the Ministry of

Defense. As of 31 December 2010, there is no improvement in the collection of these receivables and

100% provision is recognised as provision for impairment on other assets.




F-100


NOTE 13 – FUNDS BORROWED

31 December

2010

31 December

2009

Domestic Banks(*) ......................................................................................... 985,780 909,537Foreign Banks ............................................................................................... 812,932 1,116,347

Total funds borrowed ..................................................................................... 1,798,712 2,025,884

(*) Includes subordinated loans from Turkish Treasury amounting to TL193,005 thousand (2009: TL211,430 thousand).

The breakdown of funds borrowed is as follows:

31 December

2010

31 December

2009

Syndicated loans(i) ......................................................................................... 618,407 814,992

CBRT Loans(ii) .............................................................................................. 688,732 481,209

Subordinated loan(iii) ..................................................................................... 193,005 211,430World Bank (EFIL) loans(iv) ......................................................................... 143,071 86,178

T.C. Ziraat Bankası A.S.(v) ........................................................................... 104,043 216,898

European Investment Bank(vi) ....................................................................... 51,454 53,707

Black Sea Trade and Development Bank ..................................................... — 61,326

Demir Halkbank NV – Netherlands ............................................................. — 54,794

Japan Bank for International Cooperation (‘‘JBIC’’)................................... — 45,350

Total .............................................................................................................. 1,798,712 2,025,884

(i) The Bank, raised syndicated loan facilities at an amount EUR150 million (TL308,520 thousand) with a maturity of one year at10 May 2010. As of 31 December 2010, total balance of these syndicated borrowings amount to TL617,040 thousand and accrualson these borrowings amount to TL1,367 thousand.

(ii) The Bank obtained credit from CBRT within the framework of ‘‘Short Term Export Receivables Discount Loan’’ and ‘‘Pre-shipment Rediscount Loan’’ programs amounting to TL688,732 thousand as at 31 December 2010.

(iii) As of 31 December 2010, US$200 million of the Fiscal and Public Sector Adaptation Credit with a maturity of 15 April 2018,provided by the World Bank to Turkish Treasury in accordance with the agreement signed on 12 July 2001, is transferred to theBank for the development and support of the export oriented real sector. The accrual on this funds borrowed amount to TL300thousand the total balance amounts to TL193,005 thousand as of 31 December 2010.

(iv) The outstanding balances of the two lines of credit from the World Bank as at 31 December 2010 amounts to TL127,146 thousand(equivalent of US$82,477 thousand) and TL15,643 thousand (equivalent of EUR7,606 thousand). Total accrual on theseborrowings amounts to TL282 thousand and the total balance amounts to TL143,071 thousand.

(v) As of 31 December 2010, the outstanding balance of the borrowing with a maturity of one year, obtained from T.C. ZiraatBankası A.S. amounts to EUR50 million (TL102,840 thousand) and accrual on this borrowing amounts to TL1,203 thousand andthe total balance amounts to TL104,043 thousand.

(vi) The Bank raised a loan facility from European Investment Bank at an amount EUR25 million (TL51,420 thousand) with a totalmaturity of 12 years and repayment period of which starts after the fourth year. Total accrual on this borrowing amounts to TL34thousand and the total balance amounts to TL51,454 thousand as at 31 December 2010.




F-101


The repayment schedule of the funds borrowed of the Bank in 2009 was as follows:

Repayment

Amount

Repayment

Dates

Demir Halkbank NV .............................................................. EUR10,000,000 7 June 2010

Demir Halkbank NV .............................................................. EUR15,000,000 10 Augst 2010

Black Sea Trade and Development Bank ............................... US$40,000,000 12 July 2010

Ziraat Bankası......................................................................... EUR50,000,000 18 May 2010Subordinated Loans ................................................................ US$8,333,000 14 October 2010

Subordinated Loans ................................................................ US$8,333,000 14 April 2010

Japon Eximbank ..................................................................... JPY876,634,000 14 January 2010

Japon Eximbank ..................................................................... JPY1,905,829,365 14 July 2010

Club Loan, Syndicated Loan .................................................. US$25,000,000 28 September 2010

Club Loan, Syndicated Loan .................................................. EUR160,000,000 28 September 2010

Club Loan, Syndicated Loan .................................................. EUR200,000,000 1 April 2010

NOTE 14 – TAXATION

According to Act number 3332 and article 4/b of Act number 3659, dated 25 March 1987 and

26 September 1990, respectively, the Bank is exempt from Corporate Tax. Due to the 3rd Article of

the same act; the above mentioned exemption became valid from 1 January 1988. In accordance with

clause 9 of the Provisional Article 1 of Corporate Tax Law No. 5520, which states ‘‘The provision ofArticle 35 shall not apply to exemptions, allowances and deductions included in other laws in relation

to Corporation Tax prior to the effective date of the Law No. 5520’’, the exemption from

Corporation Tax continues. Accordingly, deferred tax asset or liability is not recognized in these


NOTE 15 – OTHER LIABILITIES

The principal components of other liabilities are as follows:

31 December

2010

31 December

2009

Turkish Treasury-current account-Iraq Credit ............................................. 634,928 594,606

Funds from United Nations Compensation Fund-Iraq Credit .................... 95,068 84,285Funds............................................................................................................. 6,711 6,711

Vacation pay liability .................................................................................... 5,313 4,885

Other ............................................................................................................. 22,672 38,283

764,692 728,770

(*) Payment amounting to TL413 thousand was made from the vacation pay liability account during the year 2010.

As of 31 December 2010, the funds recorded under the Turkish Treasury current account consists of

the funds transferred by the Turkish Treasury to the Bank to finance Iraq loans including the related

interest income and foreign exchange differences amounting to TL8,098 thousand (2009: TL9,271

thousand) and the principal amounting to TL626,830 thousand (2009: TL585,335 thousand). The total

amounting to TL634,928 thousand (2009: TL594,606 thousand) is recorded as ‘Fund Sourced loans’under the account ‘Loans and advances to customers’ (Note 8). In addition, ‘Fund Sourced loans’

also include TL6,009 thousand (2009: TL6,009 thousand) of ‘Funds’ accounted under Other Liabilities

account. These funds are transferred to the Bank by Turkish Treasury and are covered by Turkish

Treasury. Therefore, the Bank does not reflect any gains or losses to the statements of income on

such loans.




F-102


Funds from United Nations Compensation Fund consist of funds transferred by the United Nations

Compensation Fund for projects in Iraq.

NOTE 16 – RETIREMENT BENEFIT OBLIGATIONS

Under the Turkish Labor Law, the Bank is required to pay termination benefits to each employee

who has completed at least one year of service and whose employment is terminated without due

cause, is called up for military service, dies or who retires after completing 25 years of service (20

years for women) and achieves the retirement age (58 for women and 60 for men). Since the

legislation was changed on 23 May 2002, there are certain transitional provisions relating to length of

service prior to retirement. The amount payable consists of one month’s salary limited to a maximum

of TL2,517.01 in full TL amount (2009: TL2,365.16).

The liability is not funded, as there is no funding requirement.

The reserve has been calculated by estimating the present value of the future probable obligation of

the Bank arising from the retirement of its employees.

IAS 19 ‘‘Employment Benefits’’ requires actuarial valuation methods to be developed to estimate the

enterprise’s obligation for such benefits. Accordingly, the following actuarial assumptions were used in

the calculation of the total liability as at 31 December 2010 and 2009:

31 December

2010

31 December

2009

Discount rate (%) .......................................................................................... 4.66 5.92

Rate to estimate the probability of retirement (%)....................................... 0.98 0.98

Additionally, the principal actuarial assumption is that the maximum liability for each year of service

would increase in line with inflation. Thus the discount rate applied represents the expected real rate

after adjusting for the effects of future inflation. As the maximum liability is revised semi-annually,

the maximum amount of TL2,623.23 in full TL amount, which is effective from 1 January 2011

(1 January 2010: TL2,427.04), has been taken into consideration in calculating the reserve for

employment termination benefit of the Bank.

Movement in the reserve for employment termination benefits for the years ended 31 December 2010

and 2009 are as follows:

2010 2009

1 January ....................................................................................................... 9,963 9,582

Paid during the year...................................................................................... (754) (853)


31 December .................................................................................................. 10,856 9,963




F-103


NOTE 17 – SHARE CAPITAL

The historical paid in share capital of the Bank is TL2,000,000 thousand (2009: TL2,000,000

thousand) and consists of 2 billion (2008: 2 billion) authorized shares with a nominal value of TL1each.

31 December

2010

31 December

2009

Share capital – historical cost ....................................................................... 2,000,000 2,000,000

Adjustment to share capital .......................................................................... 812,518 812,518

Total paid in share capital ............................................................................. 2,812,518 2,812,518

The Bank is fully owned by Turkish Treasury.

The adjustment to share capital represents the restatement effect of cash and cash equivalent

contributions to share capital in terms of equivalent purchasing power at 31 December 2005 after

elimination of the accumulated deficit.

NOTE 18 – RETAINED EARNINGS AND RESERVES

Retained earnings as per the statutory financial statements other than legal reserves are available for

distribution, subject to the legal reserve requirement referred to below.

Under the Turkish Commercial Code and in accordance with the Articles of Association of the Bank,

the Bank is required to create the following legal reserves from appropriations of earnings, which are

available for distribution only in the event of liquidation or losses:

a) First legal reserve, appropriated at the rate of 5% of net income, until the total reserve is equal

to 20% of issued and fully paid-in share capital.

b) Second legal reserve, appropriated at the rate of 10% of the distribution of second dividend, in

excess of the first legal reserve, appropriated at a rate of 5% and first dividend, appropriated at

a rate of 8%.

NOTE 19 – NET INTEREST INCOME

31 December

2010

31 December

2009

Interest income on:

Interest on loans and advances to customers................................................ 171,921 323,090Interest on interbank money market placements .......................................... 71,432 67,439

Interest on investment and trading securities................................................ 59,300 37,173

Interest on deposits with banks..................................................................... 12,814 9,731

Other interest income .................................................................................... 286 539

Total interest income...................................................................................... 315,753 437,972

Interest expense on:

Interest on funds borrowed........................................................................... (26,997) (50,617)

Other interest expenses.................................................................................. (48) (108)

Total interest expense .................................................................................... (27,045) (50,725)

Net interest income ........................................................................................ 288,708 387,247




F-104


NOTE 20 – OTHER OPERATING INCOME

31 December

2010

31 December

2009

Insurance premium income ........................................................................... 28,219 23,783

Commission from reinsurance companies..................................................... 7,598 5,962

Recoveries from non-performing loans (Note 8) .......................................... 3,488 1,593

Other ............................................................................................................. 3,161 3,669

Total .............................................................................................................. 42,466 35,007

NOTE 21 – OPERATING EXPENSES

31 December

2010

31 December

2009

Staff costs ...................................................................................................... 23,374 20,777

Premiums paid to insurance companies ........................................................ 14,915 11,893

KOSGEB fee(*) .............................................................................................. 5,229 6,990

Premiums paid to reinsurance companies under political risk ..................... 3,602 2,796

Research expenses ......................................................................................... 2,065 2,410Employment termination benefits and unused vacation provision expense.. 2,076 2,130

BRSA contribution expense .......................................................................... 1,887 1,946

Taxes and duties expenses............................................................................. 1,465 1,132

Vehicle expenses ............................................................................................ 982 919

Communication and utility expenses ............................................................ 856 851

Depreciation and amortisation charges (Notes 10 and 11)........................... 676 847

Rental expenses ............................................................................................. 838 796

Computer usage expenses.............................................................................. 301 301Repair and maintenance expenses................................................................. 95 112

Other ............................................................................................................. 6,810 7,813

65,171 61,713

(*) As the Bank’s more than 50% of the paid-in share capital is owned by the government entities, the Bank is obliged to pay annualfee at a rate of 2% of the corporate tax base of the Bank to Small and Medium Industries Development Organization(‘‘KOSGEB’’) in accordance with the establishment law of KOSGEB.

NOTE 22 – COMMITMENTS AND CONTINGENT LIABILITIES

In the normal course of banking activities, the Bank undertakes various commitments and incurs

certain contingent liabilities that are not presented in these balance sheets, including letters of

guarantee, other guarantees and off-balance sheet derivative instruments. The management does not

expect any material losses as a result of these transactions. The following is a summary of significant

commitments and contingent liabilities:

Legal proceedings

At 31 December 2010, there are 140 legal proceedings outstanding against the Bank amounting to

US$2,593,513, EUR15,000 and TL248,306. As at 31 December 2010, the Bank has not provided a

provision for these legal proceedings, since possible outflow of resources embodying economic benefits

to settle these contingent liabilities will be immaterial.




F-105


Commitments under derivative instruments:

The breakdown of swap transactions at 31 December 2010 and 2009 is as follows:


Currency

Foreign

currency

amount TL 000

Foreign

currency

amount TL 000

Transaction Type

Interest rate swap purchases..................... US$ 30,000,000 46,248 30,000,000 44,700

Foreign currency swap purchases............. EUR 15,000,000 30,852 20,000,000 42,942

TL 631,119,930 631,120 561,014,240 561,014

Cross-currency swap purchases ................ JPY — — 2,190,228,568 35,361

Total purchases ......................................... 708,220 684,017

Interest rate swap sales............................. US$ 30,000,000 46,248 30,000,000 44,700

Foreign currency swap sales..................... US$ 413,905,225 638,076 398,430,000 593,661

EUR 20,000,000 41,136 — —

Cross-currency swap sales ........................ US$ — — 18,142,222 27,032

Total sales ................................................. 725,460 665,393

1,433,680 1,349,410

Maturity analysis of swap transactions is as follows:

31 December 2010

Up to

3 months

3 months

to 1 year

1 year

to 5 years

Over

5 Years Total

Interest rate swap purchases — — 46,248 — 46,248

Foreign currency swap

purchases.......................... 661,972 — — — 661,972

Total purchases ..................... 661,972 — 46,248 — 708,220

Interest rate swap sales......... — — 46,248 — 46,248

Foreign currency swap sales. 668,431 10,781 — — 679,212

Total sales............................. 668,431 10,781 46,248 — 725,460




F-106


31 December 2009

Up to

3 months

3 months

to 1 year

1 year

to 5 years

Over

5 Years Total

Interest rate swap purchases — — 16,390 28,310 44,700


purchases.......................... 573,206 30,750 — — 603,956

Cross-currency swap

purchases.......................... 8,772 26,589 — — 35,361

Total purchases ..................... 581,978 57,339 16,390 28,310 684,017

Interest rate swap sales......... — — 16,390 28,310 44,700


Cross-currency swap sales .... 6,729 20,303 — — 27,032

Total sales............................. 570,590 50,103 16,390 28,310 665,393

The above tables summarise the Bank’s derivative transactions that will be settled on a net basis into

relevant maturity groupings based on the remaining period at the balance sheet date, in respective

currencies. Accordingly, the difference between the ‘‘sale’’ and ‘‘purchase’’ transactions represents the

net exposure of the Bank with respect to commitments arising from these transactions.

Credit related commitments:

Letters of guarantee, which represent irrevocable assurances that the Bank will make payments in the

event that a customer cannot meet its obligations to third parties, carry the same credit risk as loans.Cash requirements under these guarantees are considerably less than the amount of the commitment

because the Bank does not generally expect the third party to draw funds under the agreement.

The total outstanding contractual amount of commitments to extend credit does not necessarily

represent future cash requirements, since many of these commitments will expire or terminate without

being funded.

The following table shows the outstanding credit related commitments of the Bank at 31 December

2010 and 2009:

31 December

2010

31 December

2009

Guarantees and warranties

Endorsements

– Foreign currency ........................................................................................ 688,732 481,209

Other guarantees


1,078,703 841,152

Commitments

Loan granting commitments

– Foreign currency ........................................................................................ — 13,523

Other ............................................................................................................. 2,000 2,000

Revocable commitments................................................................................ 349,781 —

351,781 15,523




F-107


The Bank provides cover for Turkish exporters, against commercial and political risks by offering

variety of insurance programs. Other guarantees include the Bank’s commitment related with the

underwritten short-term commercial and political risks.

NOTE 23 – RELATED PARTIES

Parties are considered to be related if one party has the ability to control the other party or exercise

significant influence over the other party in making financial or operational decisions. For the purpose

of these financial statements the shareholders of the Bank together with state-controlled entities in

Turkey are considered and referred to as related parties.

A number of banking transactions were entered into with related parties in the normal course of

business.

(i) Balances with related parties:

31 December

2010

31 December

2009

Due from banks ............................................................................................ 178,822 80,941

Loans and advances to customers................................................................. 374,549 366,687

Trading securities .......................................................................................... 308,488 150,149Investment securities

– Held to maturity ........................................................................................ 891,703 309,068

Funds borrowed ............................................................................................ 985,780 909,537

Other liabilities .............................................................................................. 6,711 6,711

(ii) Transactions with related parties:

31 December

2010

31 December

2009

Interest income on deposits with banks ........................................................ — 68

Interest income on investment and trading securities ................................... 59,300 37,173

Interest income on loans and advances to customers ................................... 19,890 34,950

Interest expense on funds borrowed ............................................................. 8,963 20,792

(iii) Remuneration of key management personnel:

31 December

2010

31 December

2009

Salaries and other short-term employee benefits........................................... 656 674

Post employment benefits.............................................................................. 206 233




F-108

Level: 4 – From: 0 – Tuesday, April 3, 2012 – 15:19 – eprint3 – 4409 Section 10c



AT 31 DECEMBER 2009

TOGETHER WITH INDEPENDENT AUDITOR’S REPORT

F-109



To the Board of Directors of

Turkiye Ihracat Kredi Bankası A.S.

1. We have audited the accompanying financial statements of Turkiye Ihracat Kredi Bankası A.S.

(‘‘the Bank’’) which comprise the balance sheet as of 31 December 2009 and the income

statement, statement of comprehensive income, statement of changes in equity and statement of

cash flows for the year then ended and a summary of significant accounting policies and other

explanatory notes.


2. Management is responsible for the preparation and fair presentation of these financial statements

in accordance with International Financial Reporting Standards. This responsibility includes:

designing, implementing and maintaining internal control relevant to the preparation and fair

presentation of financial statements that are free from material misstatement, whether due to

fraud or error; selecting and applying appropriate accounting policies; and making accounting

estimates that are reasonable in the circumstances.


3. Our responsibility is to express an opinion on these financial statements based on our audit. We

conducted our audit in accordance with International Standards on Auditing. Those Standards

require that we comply with ethical requirements and plan and perform the audit to obtain

reasonable assurance whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and

disclosures in the financial statements. The procedures selected depend on the auditor’s

judgment, including the assessment of the risks of material misstatement of the financial

statements, whether due to fraud or error. In making those risk assessments, the auditor

considers internal control relevant to the entity’s preparation and fair presentation of the

financial statements in order to design audit procedures that are appropriate in the

circumstances, but not for the purpose of expressing an opinion on the effectiveness of theentity’s internal control. An audit also includes evaluating the appropriateness of accounting

policies used and the reasonableness of accounting estimates made by management, as well as

evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a

basis for our audit opinion.

Opinion

4. In our opinion, the accompanying financial statements present fairly, in all material respects, the

financial position of Turkiye Ihracat Kredi Bankası A.S. as of 31 December 2009 and of its

financial performance and its cash flows for the year then ended in accordance with

International Financial Reporting Standards.

Basaran Nas Bagımsız Denetim ve

Serbest Muhasebeci Mali Musavirlik A.S.

a member of

PricewaterhouseCoopers

Z. Alper Onder, SMMM

Istanbul, 8 February 2010

F-110




AT 31 DECEMBER 2009

Note PageBalance sheet .............................................................................................................................................. F-111Income statement ........................................................................................................................................ F-112Statement of comprehensive income .......................................................................................................... F-113Statement of cash flows .............................................................................................................................. F-114Statement of changes in equity .................................................................................................................. F-115Notes to the financial statements:............................................................................................................ F-116

1 General information.................................................................................................................................... F-1162 Significant accounting policies .................................................................................................................. F-116

(a) Basis of presentation of financial statements .................................................................................. F-116(b) Accounting for the effect of hyperinflation .................................................................................... F-119(c) Derivative financial instruments ...................................................................................................... F-119(d) Investment securities ...................................................................................................................... F-119(e) Trading securities ............................................................................................................................ F-120(f) Income and expense recognition .................................................................................................... F-120(g) Interest income and expense .......................................................................................................... F-120(h) Loans and advances to customers and provision for loan impairment .......................................... F-120(i) Financial liabilities .......................................................................................................................... F-121(j) Foreign exchange transactions ........................................................................................................ F-121(k) Property and equipment .................................................................................................................. F-121(l) Intangible assets .............................................................................................................................. F-121(m) Taxation on income ........................................................................................................................ F-122(n) Employment termination benefits .................................................................................................. F-122(o) Provisions ........................................................................................................................................ F-122(p) Offsetting ........................................................................................................................................ F-122(q) Other credit related commitments .................................................................................................. F-122(r) Reporting of cash flows .................................................................................................................. F-122(s) Related parties ................................................................................................................................ F-122(t) Comparatives .................................................................................................................................. F-122

3 Financial risk management ........................................................................................................................ F-122(a) Strategy in using financial instruments .......................................................................................... F-122(b) Credit risk ........................................................................................................................................ F-123(c) Market risk ...................................................................................................................................... F-127(d) Currency risk .................................................................................................................................. F-128(e) Interest rate risk .............................................................................................................................. F-131(f) Liquidity risk .................................................................................................................................. F-133(g) Operational risk .............................................................................................................................. F-136(h) Fair value of financial instruments .................................................................................................. F-137(i) Capital management ........................................................................................................................ F-140

4 Critical accounting estimates and judgments in applying accounting policies.......................................... F-140(a) Impairment losses on loans and advances to customers ................................................................ F-140(b) Fair value of derivatives .................................................................................................................. F-140(c) Impairment of available-for-sale equity investments ...................................................................... F-141(d) Held-to-maturity investments .......................................................................................................... F-141

5 Cash and due from banks .......................................................................................................................... F-1416 Trading securities........................................................................................................................................ F-1427 Derivative financial instruments ................................................................................................................ F-1428 Loans and advances to customers .............................................................................................................. F-1449 Investment securities .................................................................................................................................. F-14510 Property and equipment ............................................................................................................................ F-14711 Intangible assets .......................................................................................................................................... F-14812 Other assets ................................................................................................................................................ F-14813 Funds borrowed ........................................................................................................................................ F-14914 Taxation ...................................................................................................................................................... F-15015 Other liabilities .......................................................................................................................................... F-15016 Retirement benefit obligation .................................................................................................................... F-15117 Share capital................................................................................................................................................ F-15218 Retained earnings and reserves .................................................................................................................. F-15219 Net interest income .................................................................................................................................... F-15320 Other operating income .............................................................................................................................. F-15421 Operating expenses .................................................................................................................................... F-15422 Commitments and contingent liabilities .................................................................................................... F-15423 Related parties ............................................................................................................................................ F-157

F-111



BALANCE SHEET AT 31 DECEMBER


Notes 2009 2008

ASSETS

Cash and due from banks ........................................................... 5 2,059,197 605,174

Trading securities......................................................................... 6 150,149 44,756


Loans and advances to customers ............................................... 8 3,854,426 3,954,622


– Available-for-sale...................................................................... 9 13,744 3,126– Held-to-maturity....................................................................... 9 309,068 242,481

Property and equipment .............................................................. 10 8,444 8,732

Intangible assets........................................................................... 11 654 7

Other assets.................................................................................. 12 14,879 8,120

Total assets .................................................................................. 6,427,109 4,885,755

LIABILITIES

Funds borrowed .......................................................................... 13 2,025,884 1,150,311


Other liabilities ........................................................................... 15 728,770 779,616

Retirement benefit obligations..................................................... 16 9,963 9,582

Total liabilities ............................................................................. 2,769,906 1,946,208

EQUITY

– Share capital ............................................................................. 17 2,000,000 1,326,336

– Adjustment to share capital ..................................................... 17 812,518 812,518

Total paid in share capital........................................................... 2,812,518 2,138,854

Other reserves .............................................................................. 7,225 (1,279)

Retained earnings ........................................................................ 18 837,460 801,972

Total equity .................................................................................. 3,657,203 2,939,547

Total liabilities and equity ............................................................ 6,427,109 4,885,755

Commitment and contingent liabilities........................................ 22

The financial statements as at and for the year ended 31 December 2009 have been approved for

issue by the Board of Directors on 8 February 2010 and signed on its behalf by Necati Yeniaras, the

Chief Financial Officer and; by Muhittin Akbas, the Head of Accounting and Reporting of the Bank.


F-112



INCOME STATEMENT FOR THE YEARS ENDED 31 DECEMBER


Notes

1 January –

31 December

2009

1 January –

31 December

2008

Interest income.................................................................... 19 437,972 468,073

Interest expense................................................................... 19 (50,725) (46,626)

Net interest income .............................................................. 387,247 421,447

Fee and commission income............................................... 2,290 368Fee and commission expense .............................................. (8,585) (2,869)

Net fee and commission expense.......................................... (6,295) (2,501)

Impairment charges on loans and credit related

commitments .................................................................. 8 (52,339) (21,277)

Foreign exchange (losses)/gains, net ................................... (23,377) 81,766

Gains/(losses) on financial instruments classified as held for

trading, net ..................................................................... 63,911 (67,121)Other operating income ...................................................... 20 35,007 32,507

Operating profit................................................................... 404,154 444,821

Operating expenses ............................................................. 21 (61,713) (73,864)



F-113



STATEMENT OF COMPREHENSIVE INCOME FOR THE YEARS ENDED 31 DECEMBER


Notes

1 January –

31 December

2009

1 January –

31 December

2008


Other comprehensive income

Change in fair value gains on available-for-sale financial

assets............................................................................... 8,618 (4,073)

Amortisation of the fair value gains of held to maturity

investments previously classified as available-for-sale

financial assets ............................................................... (114) 8

Total comprehensive income for the year............................. 350,945 366,892


F-114



STATEMENT OF CASH FLOWS FOR THE YEARS ENDED 31 DECEMBER


Notes 2009 2008

Cash flows from operating activities:

Net profit for the year ....................................................... 342,441 370,957

Adjustments for:

Depreciation and amortisation........................................... 21 847 749

Provision for loan losses..................................................... 8 52,339 21,277

Provision for employment termination benefits ................. 16 1,234 1,190

Provision for unused vacation ............................................ 15 896 657Remeasurement of derivative financial instruments at fair

value ............................................................................... 779 (8,970)

Interest income, net ............................................................ 19 (387,247) (421,447)

Interest paid ........................................................................ (53,947) (47,713)

Interest received .................................................................. 482,489 459,245

Other non-cash items.......................................................... 11,105 (290,146)

Operating profit before changes in operating assets andliabilities.......................................................................... 450,936 85,799

Net increase in due from banks.......................................... (9,000) —

Net increase in loans and advances to customers .............. (40,428) (324,618)

Net increase in trading securities ........................................ (105,683) (24,867)

Net increase in other assets ................................................ (6,760) (1,973)

Net (decrease)/increase in other liabilities .......................... (52,711) 241,339

Net cash from/(used in) operating activities ......................... 236,354 (24,320)

Cash flows used in investing activities:

Purchases of property and equipment, net ......................... 10,11 (1,206) (144)

Purchases of available-for-sale financial assets................... (2,000) —

Net increase in investment securities .................................. (64,397) (36,950)

Net cash used in investing activities ..................................... (67,603) (37,094)

Cash flows from/(used in) financing activities:

Net increase/(decrease) in borrowed funds ......................... 921,910 (24,590)

Dividends paid .................................................................... (32,183) (33,244)Cash increase in paid-in capital.......................................... 398,894 26,336

Net cash from/(used in) financing activities.......................... 1,288,621 (31,498)

Effects of exchange-rate changes on cash and cash

equivalents....................................................................... (12,184) 28,852

Net increase/(decrease) in cash and cash equivalents ........... 1,445,188 (64,060)

Cash and cash equivalents at the beginning of the year ....... 603,957 668,017

Cash and cash equivalents at the end of the year................. 5 2,049,145 603,957


F-115



STATEMENT OF CHANGES IN EQUITY FOR THE YEARS ENDED 31 DECEMBER


Share Capital

Share

capital

Adjustment

to share

capital

Total paid-

in capital

Other

reserves

Retained

earnings

Total

equity

Balance at 1 January 2008 ........... 1,000,000 812,518 1,812,518 2,786 764,259 2,579,563


Dividends paid ............................ — — — — (33,244) (33,244)



2008 ......................................... — — — (4,065) 370,957 366,892

Balance at 31 December 2008....... 1,326,336 812,518 2,138,854 (1,279) 801,972 2,939,547

Balance at 1 January 2009 ........... 1,326,336 812,518 2,138,854 (1,279) 801,972 2,939,547


Dividends paid ............................ — — — — (32,183) (32,183)



2009 ......................................... — — — 8,504 342,441 350,945



F-116


NOTE 1 – GENERAL INFORMATION

Turkiye Ihracat Kredi Bankası A.S. (‘‘the Bank’’ or ‘‘Eximbank’’) is established as Turkey’s ‘‘Official

Export Credit Agency’’ on 25 March 1987 (transformed from ‘‘State Investment Bank’’) as adevelopment and investment bank and accordingly, the Bank does not accept deposits. The Bank’s

head office is located at Mudafaa Caddesi, 20 Bakanlıklar, Ankara/Turkey. As of 31 December 2009,

the Bank has 2 branches at Istanbul and Izmir and 6 liaison offices at Bursa, Adana, Trabzon,

Denizli, Kayseri and Gaziantep. As of 31 December 2009, the Bank employed 382 people (2008: 376

people).

The Bank has been mandated to support foreign trade through diversification of the exported goods

and services, by increasing the share of exporters and entrepreneurs in international trade, and to

create new markets for the exported commodities, to provide exporters and overseas contractors withsupport to increase their competitiveness and to ensure a risk free environment in international

markets.

As a means of aiding export development services, the Bank performs loan, guarantee and insurance

services in order to financially support export and foreign currency earning services. While performing

above mentioned operations, the Bank provides short, medium or long term, domestic and foreign

currency lending through borrowings from domestic and foreign money and capital markets and from

its own sources.

On the other hand, the Bank also performs fund management (treasury) operations related with itscore banking operations. These operations are domestic and foreign currency capital market

operations, domestic and foreign currency money market operations, foreign currency market

operations, derivative transactions, all of which are approved by the Board of Directors.

The losses due to the political risks arising on loan, guarantee and insurance operations of the Bank,

are transferred to the Undersecretariat of Treasury (‘‘Turkish Treasury’’) according to article 4/c of

Act number 3332 that was appended by Act number 3659 and according to Act regarding the Public

Financing and Debt Management, number 4749, dated 28 March 2002.

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES

The principal accounting policies adopted in the preparation of these financial statements are set out

below. These policies are consistently applied to all periods presented unless otherwise stated.

(a) Basis of presentation of financial statements

These financial statements are prepared in accordance with International Financial Reporting

Standards (‘‘IFRS’’) including International Accounting Standards and Interpretations issued by the

International Accounting Standards Board (‘‘IASB’’).

The Bank maintains its books of accounts and prepares its statutory financial statements in Turkish

Lira in accordance with the Banking Law and in accordance with the ‘‘Regulation on AccountingApplications for Banks and Safeguarding of Documents’’ published in the Official Gazette No.2663

dated 1 November 2006, which refers to Turkish Accounting Standards (‘‘TAS’’) and Turkish

Financial Reporting Standards (‘‘TFRS’’) issued by the Turkish Accounting Standards Board

(‘‘TASB’’) and additional explanations and notes related to them and the accounting principles

promulgated by the Banking Regulation and Supervision Agency (‘‘BRSA’’) and other relevant rules

promulgated by the Turkish Commercial Code and Tax Regulations. These financial statements are

based on the historical cost convention and adjusted as necessary in order to comply with IFRS

issued by the IASB.

The preparation of financial statements in conformity with IFRS requires the use of certain critical

accounting estimates. It also requires management to exercise its judgement in the process of applying

the Bank’s accounting policies. The areas involving a higher degree of judgement or complexity, or

areas where assumptions and estimates are significant to the financial statements are disclosed in

Note 4.




F-117


Standards, amendments and interpretations effective on or after 1 January 2009

The following amendments to published standards and interpretations to existing standards, effective

on or after 1 January 2009, are relevant to the Bank’s operations.

IAS 1, ‘‘Presentation of financial statements’’ (Revised). The revised standard prohibits the

presentation of items of income and expenses (that is, ‘non-owner changes in equity’) in the statement

of changes in equity, requiring ‘non-owner changes in equity’ to be presented separately from owner

changes in equity in a statement of comprehensive income. Entities can choose whether to present oneperformance statement (the statement of comprehensive income) or two statements (the income

statement and statement of comprehensive income). The Bank has elected to present two statements:

an income statement and a statement of comprehensive income.

IFRS 7, ‘‘Financial instruments: Disclosures’’ (Amendment). The amendment requires enhanceddisclosures about fair value measurements and liquidity risk. In particular, the amendment requires

disclosure of fair value measurements by level of a fair value measurement hierarchy. The adoption of

the amendment results in additional disclosures but does not have an impact on the financial position

or the comprehensive income of the Bank.

The following standards, amendments to published standards and interpretations to existing

standards, effective on or after 1 January 2009, are not relevant to the Bank’s operations.

IFRS 8, ‘‘Operating segments’’. The Standard replaces IAS 14, ‘Segment reporting’, with its

requirement to determine primary and secondary reporting segments.

IFRS 2, ‘‘Share-based payment – Vesting conditions and cancellations’’ (Amendment). The changes

pertain mainly to the definition of vesting conditions and the regulations for the cancellation of a

plan by a party other than the company. These changes clarify that vesting conditions are solely

service and performance conditions. As a result of the amended definition of vesting conditions, non-vesting conditions should now be considered when estimating the fair value of the equity instrument

granted. In addition, the standard describes the posting type if the vesting conditions and non-vesting

conditions are not fulfilled.

IAS 23, ‘‘Borrowing costs’’ (Revised). The revised standard eliminates the option of immediate

recognition of borrowing costs as an expense for assets that require a substantial period of time to

get ready for their intended use.

IAS 32, ‘‘Financial instruments: Presentation’’ (Amendment). The amendment requires some financialinstruments that meet the definition of a financial liability to be classified as equity. Puttable financial

instruments that represent a residual interest in the net assets of the entity are now classified as equity

provided that specified conditions are met. Similar to those requirements is the exception to the

definition of a financial liability for instruments that entitle the holder to a pro rata share of the net

assets of an entity only on liquidation.

IFRIC 16, ‘‘Hedges of a net investment in a foreign operation’’. This interpretation clarifies the

accounting treatment in respect of net investment hedging. This includes the fact that net investment

hedging relates to differences in functional currency not presentation currency, and hedging

instruments may be held anywhere in the Bank.

IFRIC 13, ‘‘Customer loyalty programmes’’. IFRIC 13 clarifies that where goods or services are sold

together with a customer loyalty incentive (for example, loyalty points or free products), the

arrangement is a multiple element arrangement. The consideration receivable from the customer is

allocated between the components of the arrangement using fair values.




F-118


Standards, amendments and interpretations to existing standards issued but not yet effective

Standards, amendments and interpretations to existing standards that are relevant to the Bank’s operations

and are not yet effective and have not been early adopted by the Bank

IFRS 9, ‘‘Financial instruments part 1: Classification and measurement’’ (Effective from 1 January

2013). IFRS 9 was issued in November 2009 and replaces those parts of IAS 39 relating to the

classification and measurement of financial assets. Key features are as follows:

* Financial assets are required to be classified into two measurement categories: those to bemeasured subsequently at fair value, and those to be measured subsequently at amortised cost.

The decision is to be made at initial recognition. The classification depends on the entity’s

business model for managing its financial instruments and the contractual cash flow

characteristics of the instrument.

* An instrument is subsequently measured at amortised cost only if it is a debt instrument and

both the objective of the entity’s business model is to hold the asset to collect the contractual

cash flows, and the asset’s contractual cash flows represent only payments of principal and

interest (that is, it has only ‘basic loan features’). All other debt instrument are to be measured

at fair value through profit or loss.

* All equity instruments are to be measured subsequently at fair value. Equity instruments that

are held for trading will be measured at fair value through profit or loss. For all other equity

investments, an irrevocable election can be made at initial recognition, to recognise unrealised

and realised fair value gains and losses through other comprehensive income rather than profit

or loss. There is to be no recycling of fair value gains and losses to profit or loss. This election

may be made on an instrument-by-instrument basis. Dividends are to be presented in profit or

loss, as long as they represent a return on investment.

IAS 39, ‘‘Financial instruments: Recognition and measurement – Eligible hedged items’’ (Amendment)

(Effective from 1 July 2009). The amendment provides guidance for two situations. On the

designation of a one-sided risk in a hedged item, IAS 39 concludes that a purchased option

designated in its entirety as the hedging instrument of a one-sided risk will not be perfectly effective.The designation of inflation as a hedged risk or portion is not permitted unless in particular

situations.

Interpretations and amendments to existing standards that are not yet effective and not relevant for the Bank’s

operations

IFRS 3, ‘‘Business combinations’’ (Revised) (Effective from 1 July 2009). The revised standard

continues to apply the acquisition method to business combinations, with some significant changes.

For example, all payments to purchase a business are to be recorded at fair value at the acquisition

date, with contingent payments classified as debt subsequently re-measured through the income

statement. There is a choice, on an acquisition-by-acquisition basis, to measure the non-controllinginterest in the acquiree either at fair value or at the non-controlling interest’s proportionate share of

the acquiree’s net assets. All acquisition-related costs should be expensed.

IAS 27, ‘‘Consolidated and separate financial statements’’ (Revised) (Effective from 1 July 2009). Therevised standard requires the effects of all transactions with non-controlling interests to be recorded in

equity if there is no change in control and these transactions will no longer result in goodwill or

gains and losses. The standard also specifies the accounting when control is lost; any remaining

interest in the entity is re-measured to fair value, and a gain or loss is recognised in profit or loss.

IFRS 1 and IAS 27, ‘‘Cost of an investment in a subsidiary, jointly-controlled entity or associate’’

(Amendment) (Effective from 1 July 2009). The amended standard allows first-time adopters to use a

deemed cost of either fair value or the carrying amount under previous accounting practice to

measure the initial cost of investments in subsidiaries, jointly controlled entities and associates in the

separate financial statements. The amendment also removes the definition of the cost method from




F-119


IAS 27 and requires an entity to present dividends from investments in subsidiaries, jointly controlled

entities and associates as income in the separate financial statements of the investor.

IFRIC 17, ‘‘Distribution to non-cash assets to owners’’ (Effective from 1 July 2009). The standard

addresses how the non-cash dividends distributed to the shareholders should be measured. A dividendobligation is recognised when the dividend was authorised by the appropriate entity and is no longer

at the discretion of the entity. This dividend obligation should be recognised at the fair value of the

net assets to be distributed. The difference between the dividend paid and the amount carried forward

of the net assets distributed should be recognised in profit and loss. Additional disclosures are to be

made if the net assets being held for distribution to owners meet the definition of a discontinued

operation.

IFRIC 18, ‘‘Transfers of assets from customers’’ (Effective from 1 July 2009). The standard clarifies

how to account for transfers of items of property, plant and equipment by entities that receive such

transfers from their customers. The interpretation also applies to agreements in which an entityreceives cash from a customer when that amount of cash must be used only to construct or acquire

an item of property, plant and equipment, and the entity must then use that item to provide the

customer with ongoing access to supply of goods and/or services.

(b) Accounting for the effect of hyperinflation

Prior to 1 January 2006, the adjustments and reclassifications made to the statutory records for the

purpose of fair presentation in accordance with IFRS included the restatement of balances and

transactions for the changes in the general purchasing power of the Turkish Lira in accordance withIAS 29 ‘‘Financial Reporting in Hyperinflationary Economies’’. IAS 29 requires that the financial

statements prepared in the currency of a hyperinflationary economy be stated in terms of the

measuring unit current at the balance sheet date. As the characteristics of the economic environment

of Turkey indicate that hyperinflation has ceased, effective from 1 January 2006, the Bank no longer

applies the provisions of IAS 29. Accordingly, the amounts expressed in the measuring unit current at

31 December 2005 are treated as the basis for the carrying amounts in these financial statements.

(c) Derivative financial instruments

Derivative financial instruments, including currency and interest rate swap instruments, are initially

recognised in the balance sheet at cost (including transaction costs) and are subsequently remeasured

at their fair value. All derivative financial instruments are classified as held for trading. Even though

cross currency swap transactions, while providing effective economic hedges under the Bank’s risk

management position, do not qualify for hedge accounting under the specific rules in IAS 39

‘‘Financial Instruments: Recognition and Measurement’’, and are therefore treated as derivatives held

for trading with fair value gains and losses reported in income. Fair values are obtained from quoted

market prices and discounted cash flow models as appropriate. Fair value of over-the-counter(‘‘OTC’’) forward or swap foreign exchange contracts is determined based on the comparison of the

original forward rate with the market interest rates. All derivatives are carried as assets when the fair

value is positive and as liabilities when the fair value is negative.

(d) Investment securities

Investment securities are classified into the following two categories: held-to-maturity and available-

for-sale assets. Investment securities with fixed maturity where management has both the intent and

the ability to hold to maturity are classified as held-to-maturity. Investment securities intended to beheld for an indefinite period of time, which may be sold in response to needs for liquidity or changes

in interest rates, exchange rates or equity prices, are classified as available-for-sale. Management

determines the appropriate classification of its investments at the time of the purchase.

Investment securities are initially recognised at transaction prices, which normally reflect their fair

values.




F-120


Available-for-sale investment debt and equity securities are subsequently remeasured at fair value

based on quoted bid prices, or amounts derived from cash flow models. Unrealised gains and losses

arising from changes in the fair value of securities classified as available-for-sale are recognised in the

shareholders’ equity as ‘‘other reserves’’, unless there is a permanent decline in the fair values of suchassets, in which case they are charged to the income statement. Impairment losses recognised in the

income statement on equity instruments are not reversed through the income statement. Equity

securities for which fair values cannot be measured reliably are recognised at cost less impairment.

When the securities are disposed of or impaired, the related accumulated fair value adjustments are

transferred to the income statement.

Held-to-maturity investments are carried at amortised cost using the effective interest rate method,

less any provision for impairment. Interest earned whilst holding investment securities is reported as

interest income. Dividends receivable is included separately in dividend income when a dividend is

declared.

All purchases and sales of investment securities that require delivery with the time frame establishedby regulation or market convention (‘‘regular way’’ purchases and sales) are recognised at the

settlement date, which is the date that the asset is delivered to/from the Bank.

As of 31 December 2008, the Bank has reclassified its financial assets with a fair value of TL66,054

thousand from trading portfolio to held to maturity investment securities portfolio due to the change

in its intention to hold the financial assets until maturity in accordance with the amendment in IAS39 ‘‘Financial Instruments: Recognition and Measurement’’ and IFRS 7 ‘‘Financial Instruments:

Disclosures’’ announced by IASB on 13 October 2008. As of 31 December 2009, the fair value of

unmatured reclassified financial assets is TL29,349 thousand which is carried at amortised cost of

TL28,813 thousand under held-to-maturity securities portfolio. Had the reclassification not been

performed, the cumulative net profit of the Bank in relation with the unmatured reclassified financial

assets would have increased by TL536 thousand and TL1,260 thousand of this amount would have

been recognised as loss for the year ended 31 December 2009.

(e) Trading securities

Trading securities are securities which were either acquired for generating a profit from short-term

fluctuations in price or dealer’s margin, or are securities included in a portfolio in which a pattern of

short-term profit making exists. These are initially recognised at cost and subsequently re-measured at

fair value based on quoted bid prices or amounts derived from cash flow models. All related realised

and unrealised gains and losses are included in net trading income. Dividends received are included in

dividend income.

All regular way purchases and sales of trading financial assets are recognised at the settlement date.

(f) Income and expense recognition

Income and expenses are recognised on an accrual basis. Commission income and fees for certain

banking services such as import and export related services and issuance of letters of guarantee andare recorded as income at the time of affecting the transactions to which they relate.

(g) Interest income and expense

Interest income and expense are recognised in the income statement for all interest bearing

instruments on an accrual basis using the effective yield method based on the actual purchase price

until, in management’s estimates and judgment, collection becomes doubtful. Interest income includes

coupons earned on fixed income securities and accrued discount on treasury bills.

(h) Loans and advances to customers and provision for loan impairment

Loans originated by the Bank by providing money directly to the borrower or to a sub-participation

agent at draw down are categorised as loans originated by the Bank and are carried at amortised




F-121


cost, less any provision for loan losses. All originated loans are recognised when cash is advanced to

borrowers.

A credit risk provision for loan impairment is established if there is objective evidence that the Bankwill not be able to collect all amounts due. The amount of the provision is the difference between the

carrying amount and recoverable amount, being the present value of expected cash flows, including

the amount recoverable from guarantees and collateral, discounted based on the interest rate at

inception. The level of the provision is also based on applicable banking regulations. An additional

provision for loan impairment is established to cover losses that are judged to be present in the

lending portfolio at the balance sheet date, but which have not been specifically identified as such.

The provision made during the year is charged against the income for the year. Loans that can not

be recovered are written off and charged against the allowance for loan losses. Such loans are writtenoff after all the necessary legal proceedings have been completed and the amount of the loan loss is

finally determined. Recoveries of amounts previously provided for are treated as a reduction from

provision for loan losses for the year (Note 8).

(i) Financial liabilities

Financial liabilities, including funds borrowed from banks, are recognised initially at cost.

Subsequently, financial liabilities are stated at amortised cost and any difference between net proceeds

and the redemption value is recognised in the income statement over the period of the financialliability using the effective yield method.

(j) Foreign exchange transactions

Transactions denominated in foreign currencies are accounted for at the exchange rates prevailing at

the date of the transactions. Foreign exchange gains and losses resulting from the settlement of such

transactions and from the translation at year-end exchange rates of monetary assets and liabilities

denominated in foreign currencies are recognised in the income statement.

(k) Property and equipment

All property and equipment carried at historical cost less accumulated depreciation are restated to the

equivalent purchasing power at 31 December 2005. Depreciation is calculated over the restated

amounts of property and equipment using the straight-line method to write off the restated cost of

each asset to its residual value over its estimated useful life, as follows:

Buildings 50 years

Equipment and vehicles .... 4 – 16 years

Where the carrying amount of an asset is greater than its estimated recoverable amount (‘‘higher of

net realisable value and value in use’’), it is written down immediately to its recoverable amount.

Gains and losses on disposal of property and equipment are determined by reference to their carrying

amount and are taken into account in determining operating profit.

Expenditure for the repair and renewal of property and equipment is charged against income. It is,

however, capitalised if it results in an enlargement or substantial improvement of the respective assets.

(l) Intangible assets

Acquired computer software licenses are capitalised on the basis of the costs incurred to acquire and

bring to use the specific software. These costs are amortised on the basis of the expected useful lives

(not exceeding a period of five years). These assets are accounted for intangible assets in these





F-122


(m) Taxation on income

According to Act number 3332 and article 4/b of Act number 3659, dated 25 March 1987 and 26

September 1990, respectively, the Bank is exempt from Corporate Tax. Due to the 3rd Article of Actnumber 3659, the above mentioned exemption became valid from 1 January 1988. Accordingly,

deferred tax is not calculated and reflected to these financial statements.

(n) Employment termination benefits

Employment termination benefits (‘‘ETB’’) represent the present value of the estimated total reserve

for the future probable obligation of the Bank arising from the retirement of the employees,

calculated in accordance with the Turkish Labor Law (Note 16).

(o) Provisions

Provisions are recognised when the Bank has a present legal or constructive obligation as a result of

past events, it is probable that an outflow of resources embodying economic benefits will be required

to settle the obligation, and a reliable estimate of the amount of the obligation can be made.

(p) Offsetting

Financial assets and liabilities are offset and the net amount is reported in the balance sheet when

there is a legally enforceable right to set off the recognised amounts and there is an intention to settle

on a net basis, or to realise the asset and settle the liability simultaneously.

(q) Other credit related commitments

In the normal course of business, the Bank enters into other credit related commitments includingloan commitments and guarantees. These are reported as off-balance sheet items at their notional

amounts and are assessed using the same criteria as loans and advances. Specific provisions are

therefore established when losses are considered probable and recorded as other liabilities (Note 22).

(r) Reporting of cash flows

For the purposes of cash flow statement, cash and cash equivalents include cash, due from banks,

trading securities and investment securities with original maturity periods of less than three months(Note 5).

(s) Related parties

For the purpose of these financial statements the shareholders of the Bank together with state-

controlled entities in Turkey are considered and referred to as related parties (Note 23).

(t) Comparatives

Where necessary, comparative figures have been reclassified to conform to changes in presentation in

the current year.

NOTE 3 – FINANCIAL RISK MANAGEMENT

(a) Strategy in using financial instruments

As of 31 December 2009, the loan portfolio of the Bank constitutes 60% (2008: 81%) of total assets.

In short, medium and long term lending (except for fund sourced and country loans), the Bank is

taking the risk of the Turkish banking system, however medium-to-long term country loans are under

the political risk guarantee of the Turkish Treasury.

The interest rates of the foreign currency denominated liabilities are constant while remaining is

floating. The Bank has converted the rate of its fixed rate borrowings into floating rate by the cross-

currency swaps. In accordance with its mission, the Bank strives to reflect the cost of its funding to




F-123


the foreign currency loans granted. The loans denominated in Turkish Lira are fully funded by equity

and in accordance with the Bank’s mission.

The Board of Directors of the Bank sets risk limits and parameters for the transactions havingsignificant implications for the operations of the Bank.

The objective of the Bank’s asset and liability management and use of financial instruments is to limit

the Bank’s exposure to liquidity risk, interest rate risk and foreign exchange risk, while ensuring that

the Bank has sufficient capital adequacy.

(b) Credit risk

According to article numbered 25 of the decree (regulating the ‘‘Articles of Association’’ of the Bank)

of the Council of Ministers dated 17 June 1987; the scope of the annual operations of the Bank is

determined by the Bank’s Annual Program that is approved by Supreme Advisory and Credit

Guidance Committee (‘‘SCLGC’’). SCLGC is chaired by the Prime Minister or State Minister

appointed by the Prime Minister and includes executive managers. The Board of Directors of the

Bank is authorised to allocate the risk limits of loan, guarantee and insurance premium to country,

sector and commodity groups, within the principles set by the Annual Program.

In accordance with the collateralisation policy of the Bank, the Bank is taking the risks of short term

loans to domestic banks. The cash and non-cash limits of domestic banks for short term and medium

and long term credits are approved by the Board of Directors.

Short term export loans and foreign currency earning services are granted to companies upon the

approval of the Loan Committee of the Bank. This authorisation is limited to 1% of the equity of

the Bank.

The risk limits of the foreign country loans are determined by annual programs which are approved

by SCLGC within the foreign economic policy.

Country loans are granted with the approval of the Board of Directors and the approval of the

Minister and the Council of Ministers, according to article 10 of Act number 4749 dated 28 March

2002 related to the regulation of Public Finance and Debt Management.

The fundamental collateral of the foreign country loans are the government guarantee of the counter

country and the guarantee of banks that the Bank accepts as accredited.

The limit of a country is restricted by both ‘‘maximum limit that can be undertaken’’ and ‘‘maximum

amount that can be used annually’’.

Each year major portion of the commercial and politic risks emerged in Short Term Export Insurance

Program is transferred to international reinsurance companies under renewed agreements.

According to the Article 4/C of Act number 3332 that was appended by Act number 3659 and Act

regarding the regulation of Public Financing and Debt Management dated 28 March 2002, the losses

incurred by the Bank in its credit, guarantee and insurance transactions as a result of political risks

are covered by the Turkish Treasury.

The Bank reviews reports of OECD country risk groupings, reports of the members of the

International Union of Credit and Investment Insurers, reports of independent credit ratinginstitutions and the financial statements of the banks risks of which are undertaken during the

assessment and review of the loans granted. In addition, country reports and short term country risk

classifications prepared within the Bank are also utilised.

The risks and limits of companies and banks are followed by both loan and risk departments on a

weekly and monthly basis.

In addition, all of the foreign exchange denominated operations and other derivative transactions of

the Bank are carried out under the limits approved by the Board of Directors.

Business and geographic distribution of the loan risks runs parallel with the export composition of

Turkey and this is followed up by the Bank regularly.




F-124



The Bank reviews its loan portfolios to assess impairment on quarterly basis. In determining whether

an impairment loss should be recorded in the income statement, the Bank makes judgments as towhether there is any observable data indicating that there is a measurable decrease in the estimated

future cash flows from a portfolio of loans before the decrease can be identified with an individual

loan in that portfolio. This evidence may include observable data indicating that there has been an

adverse change in the payment status of borrowers in a group, or national or local economic

conditions that correlate with defaults on assets in the group. The Bank uses estimates based on

historical loss experience for assets with credit risk characteristics and objective evidence of

impairment similar to those in the portfolio when scheduling its future cash flows. The methodology

and assumptions used for estimating both the amount and timing of future cash flows are reviewedregularly to reduce any differences between loss estimates and actual loss experience.

In line with the mission of the Bank, the Bank grants loans only to corporate customers and follows

its credit portfolio under categories specified below:


Corporate

Loans

Personnel

Loans

Corporate

Loans

Personnel

Loans

Standard loans and advances ....................... 3,901,080 3,426 3,983,670 3,602

Loans and advances under close monitoring 4,160 — 17,689 —

Impaired loans and advances ....................... 103,498 — 56,653 —

Total loans and advances to customers .......... 4,008,738 3,426 4,058,012 3,602

Allowance for loan losses ............................. (157,738) — (106,992) —

Net loans and advances to customers............. 3,851,000 3,426 3,951,020 3,602

As of 31 December 2009 and 2008, there are no past due loans and advances classified under

standard loans and the details of the loans and advances under close monitoring are as follows:

31 December

2009

31 December

2008

Past due up to 30 days.................................................................................. 1,351 14,549

Past due 30-60 days....................................................................................... 605 3,140

Past due 60-90 days....................................................................................... 2,204 —

Total loans and advances under close monitoring ........................................... 4,160 17,689

As of 31 December 2009 and 2008, the fair value of collaterals held for loans and advances to

customers are as follows:31 December

2009

31 December

2008

Loans and advances under close monitoring ................................................ 7,793 75,123

Loans and advances under legal follow-up................................................... 575,666 167,679

Total .............................................................................................................. 583,459 242,802

As of 31 December 2009, the Bank does not have repossessed collateral (2008: None).




F-125


Bank’s credit rating system

The risk assessment of banks and other financial institutions

The Bank requests independent auditor’s report (financial statements and notes) and net foreign

currency position from banks and other financial institutions on a quarterly basis.

Financial statement information derived from the independent audit or review reports of banks andother financial institutions is recorded into a database in a standard format and percentage changes

and ratios related with the capital adequacy, asset quality, liquidity and profitability of the banks and

other financial institutions are calculated. In addition, the standard ratios for capital adequacy, asset

quality, liquidity and profitability ratios are redefined periodically considering the operations of the

banking groups and acceptable intervals for standards ratios are defined.

In accordance with the standard ratios, the financial analysis groups are defined by assigning grades

from 1 to 4 to banks and other financial institutions. Group with grade 1 consists of the lowest risk

profile of banks and financial institutions and group with grade 4 consists of the highest risk profile

of banks and financial institutions.

In accordance with the financial analysis group of the banks and other financial institutions, the final

risk groups are determined by considering qualitative factors such as shareholding structure, group

companies, credit ratings from international credit rating institutions, quality of management and alsoinformation obtained from media.

As of 31 December 2009, loans granted by the Bank to banks and other financial institutions amount

to TL1,934,678 thousand (2008: TL2,526,001 thousand). As of 31 December 2009 and 2008 theconcentration level of the loans and advances to customers in accordance with the defined financial

analysis groups of the Bank are as follows:

Rating

Class

31 December 2009

Concentration level

(%)

31 December 2008

Concentration level

(%)

Low...................................................... 1-2 51 13

Medium................................................ 3 33 66

High ..................................................... 4 16 21

The risk assessment of the companies:

In the risk evaluation of the companies, the Bank obtains financial and organisational information

both from the companies and also from various sources (such as Central Bank of the Republic ofTurkey (‘‘CBRT’’) records, Trade Registry Gazette, Chamber of Trade records, information obtained

from the Undersecretariat of Foreign Trade, banks and companies operating in the same sector) and

uses comprehensive investigation and verification methods. In addition to the analysis of the last three

year financial statements of the companies, the Bank also analyses the current status of the sectors in

which the companies operate, economic and political changes affecting the target sectors in the

international markets, the advantages and disadvantages of the companies compared to their rival

companies operating in or outside Turkey. In case the company is a member of a group of

companies not organised as a holding company, the developments that affect the group’s operationsare monitored and outstanding bank debts of the group are also assessed and company analysis

reports are prepared taking into account the group risk as well. The Bank does not utilise a separate

rating system regarding the risk assessment of the companies.




F-126


As of 31 December 2009 and 2008, the classification and allowance percentages of the loans and

advances of the Bank are as follows:


Loans and

advances

Allowancefor loan

losses

Loans and

advances

Allowancefor loan

losses

(%) (%) (%) (%)

Standard loans and advances ....................... 97.32 1.39 98.17 1.26

Loans and advances under close monitoring 0.10 1.39 0.44 1.26

Impaired loans and advances ....................... 2.58 100.00 1.39 100.00

Total 100.00 3.93 100.00 2.63

The Bank’s maximum exposure to credit risk as of 31 December 2009 and 2008:

31 December

2009

31 December

2008

Credit risk exposures relating to on-balance sheet assets:

Due from banks ............................................................................................ 2,059,188 605,160


– Domestic banks and other financial institutions........................................ 1,847,478 2,463,358

– Foreign banks and other financial institutions .......................................... 87,200 62,643– Corporate customers and personnel........................................................... 1,919,748 1,428,621


Derivative financial instruments.................................................................... 16,548 18,737


– Available-for-sale ....................................................................................... 13,744 3,126

– Held-to-maturity ........................................................................................ 309,068 242,481

Other assets ................................................................................................... 6,139 5,318

Credit risk exposures relating to off-balance sheet items:

Guarantees and warranties............................................................................ 841,152 359,771

Commitments ................................................................................................ 15,523 21,558

Total .............................................................................................................. 7,265,937 5,255,529




F-127


As of 31 December 2009 and 2008, the geographical distribution of the on-balance sheet assets

exposed to credit risk;

Turkey

EU

Countries

OECD

Countries(*) USA

Other

Countries Total

Due from banks ........................ 1,408,257 563,506 34,339 53,086 — 2,059,188



financial institutions............... 1,847,478 — — — — 1,847,478


financial institutions............... — — — — 87,200 87,200


personnel................................ 1,919,748 — — — — 1,919,748

Trading securities ...................... 150,149 — — — — 150,149

Derivative financial instruments — 14,727 — 1,821 — 16,548


– Available-for-sale ................... 13,744 — — — — 13,744

– Held-to-maturity .................... 309,068 — — — — 309,068

Other assets ............................... 6,139 — — — — 6,139

As of 31 December 2009 ............ 5,654,583 578,233 34,339 54,907 87,200 6,409,262

As of 31 December 2008 ............ 4,754,746 53,184 676 1,891 63,703 4,874,200

(*) The OECD countries except for EU countries, Canada and USA.

As of 31 December 2009 and 2008, the sectoral distribution of the on-balance sheet assets exposed to

credit risk;

Financial

Institutions Agriculture Manufacturing

Wholesale

and Retail Construction

Public

Sector Other Personnel Total

Due from banks ................. 2,059,188 — — — — — — — 2,059,188



financial institutions........ 1,847,478 — — — — — — — 1,847,478


financial institutions........ 87,200 — — — — — — — 87,200


personnel......................... — 15,136 1,251,691 33,232 514,537 — 101,726 3,426 1,919,748

Trading securities ............... — — — — — 150,149 — — 150,149

Derivative financial

instruments...................... 16,548 — — — — — — — 16,548


– Available-for-sale ............ 13,744 — — — — — — — 13,744

– Held-to-maturity ............. — — — — — 309,068 — — 309,068

Other assets ........................ 2,311 — 3,334 494 — — — — 6,139

As of 31 December 2009 ..... 4,026,469 15,136 1,255,025 33,726 514,537 459,217 101,726 3,426 6,409,262

As of 31 December 2008 ..... 3,158,342 23,708 785,728 29,833 546,024 287,237 39,726 3,602 4,874,200

(c) Market risk

The Bank marks to market all its Turkish lira and foreign currency marketable security positions as a

result of its daily financial activities in order to be able to hedge market risk. In order to limit any

possible losses from market risk, the Bank applies a maximum daily transaction and stop/loss limits

for all trading Turkish lira and foreign currency transactions including marketable security

transactions; such limits are approved by the Board of Directors.




F-128


The Bank calculates the amount subject to market risk, including ‘‘Currency Risk’’ and ‘‘Interest

Rate Risk (the Bank does not carry common stock position) in accordance with ‘‘Communique

Related to Market Risk Measurement by Standard Method’’ (‘‘Standard Method’’) issued by the

BRSA. In accordance with such method, currency risk is calculated on a daily basis and market riskincluding both ‘‘currency risk’’ and ‘‘interest risk’’ is calculated on a monthly basis.

Although the Bank carries a limited currency position (close to closed position) in accordance with

the general currency policy of the Bank, there exists capital requirement for the currency risk position

of the Bank under the Standard Method; the rationale behind this capital requirement is the absence

of reinsurance over the non-cash commitments of the Bank mainly due to the structure of the Short-

term Export Credit Insurance Programme.

Sensitivity Tests

In accordance with the mission of the Bank, the Bank does not follow a profit oriented strategy but

rather follows a strategy aiming to avoid the eroding effects of inflation on the share capital by

making reasonable amount of profit. Under this framework, necessary changes to loan interest rates

are made considering the changes in cost of funds and market interest rates; changes in the interest

rates are made using the expected year-end inflation levels as break-even point considering the return

on equity at the same time. In this context, the sensitivity analysis are also prepared under variousscenarios (optimist, pessimist and normal) and also under abnormal fluctuation (stress) assumptions

which measure the sensitivity of the net profit to the changes in market interest rates and the Bank’s

loan interest rates. Moreover, possible losses arising from interest rate and foreign exchange risk are

calculated under various scenarios and in order to minimize possible losses, the Bank undertakes

swap transactions (especially money and interest swaps).

The average market risk table of calculated market risk during the month ends as of 31 December

2009 and 2008, as per the statutory financial statements prepared for BRSA reporting purposes within

the scope of ‘‘Regulation on Measurement and Assessment of Capital Adequacy of Banks’’ publishedin Official Gazette no.26333 dated 1 November 2006, are as follows:


Average Maximum Minimum Average Maximum Minimum

Interest Rate Risk ............................... 3,343 3,765 1,999 2,194 2,513 2,061

Equity Share risk................................. — — — — — —

Currency Risk...................................... 25,923 29,643 22,352 23,805 30,238 20,407

Total Capital to be Employed for

Market Risk (A) ............................. 29,266 33,408 24,351 25,999 32,751 22,468

Total Amount

Subject to Market Risk (A*12.5) ......... 365,825 417,600 304,388 324,987 409,388 280,850

(d) Currency risk

Foreign currency denominated assets and liabilities, together with purchase and sale commitments give

rise to foreign exchange exposure.

The Bank’s foreign exchange position is followed daily, and the transactions are performed inaccordance with the expectations in the market and within the limits determined by the Risk

Management Principles approved by the Board of Directors of the Bank.

The Bank takes on exposure to effects of fluctuations in the prevailing foreign currency exchange

rates on its financial position and cash flows. Included in the table are the Bank’s assets, liabilities

and equity at carrying amounts, categorized by currency.




F-129


The table below summarizes the Bank’s exposure to foreign currency exchange rate risk at

31 December 2009 and 2008.

31 December 2009


Cash and due from banks ................... 68,656 578,095 2,130 2,964 1,407,352 2,059,197

Trading securities ................................ 3,332 — — — 146,817 150,149

Derivative financial instruments .......... — — 8,692 — 7,856 16,548

Loans and advances to customers....... 1,973,513 588,862 5,133 5,318 1,281,600 3,854,426


– Available-for-sale.............................. — — — — 13,744 13,744

– Held-to-maturity............................... 49,664 — — — 259,404 309,068

Property and equipment and

intangible assets ............................... — — — — 9,098 9,098

Other assets ......................................... 2,248 278 — 8 12,345 14,879

Total assets .......................................... 2,097,413 1,167,235 15,955 8,290 3,138,216 ... 6,427,109

Funds borrowed .................................. 763,900 1,216,634 45,350 — — 2,025,884

Derivative financial instruments .......... 5,186 — — — 103 5,289

Other liabilities .................................... 687,691 10,117 — — 30,962 728,770


benefits ............................................. — — — — 9,963 9,963

Equity .................................................. 275 — — — 3,656,928 3,657,203

Total liabilities and equity.................... 1,457,052 1,226,751 45,350 — 3,697,956 6,427,109

Net balance sheet position .................... 640,361 (59,516) (29,395) 8,290 (559,740) —

Off balance sheet derivative instruments

net notional position ......................... (620,693) 42,942 35,361 — 561,014 18,624






3,138,216

F-130


31 December 2008


Cash and due from banks ................... 13,734 21,385 554 820 568,681 605,174

Trading securities ................................ 8,268 — — — 36,488 44,756

Derivative financial instruments .......... 165 — 14,855 — 3,717 18,737

Loans and advances to customers....... 1,336,294 486,635 11,864 4,929 2,114,900 3,954,622



– Held-to-maturity............................... 53,431 — — — 189,050 242,481



Other assets ......................................... 3,122 647 — 7 4,344 8,120

Total assets .......................................... 1,415,014 508,667 27,273 5,756 2,929,045 4,885,755

Funds borrowed .................................. 528,578 544,646 77,087 — — 1,150,311

Derivative financial instruments .......... 6,464 — — — 235 6,699



benefits............................................ — — — — 9,582 9,582

Equity .................................................. 389 — — — 2,939,158 2,939,547

Total liabilities and equity.................... 1,194,611 553,486 77,087 — 3,060,571 4,885,755

Net balance sheet position .................... 220,403 (44,819) (49,814) 5,756 (131,526) —

Off balance sheet derivative instruments

net notional position ......................... (206,606) 45,022 63,234 — 116,954 18,604



As of 31 December 2009 and 2008, the effect of the devaluation of TL by 10% against other

currencies with all other variables held constant, on net profit and equity of the Bank, is as follows:


Effect on

Net Profit

Effect on

Equity(*)Effect on

Net Profit

Effect on

Equity(*)

US$ ............................................................... 10,598 10,625 10,740 10,779

EUR.............................................................. (5,952) (5,952) (4,482) (4,482)

JPY ............................................................... (2,940) (2,940) (4,981) (4,981)

Other currencies............................................ 829 829 576 576

Total.............................................................. 2,535 2,562 1,853 1,892

(*) Effect on equity also includes effect on net income.

As of 31 December 2009 and 2008, the effect of the appreciation of TL by 10% against other

currencies with all other variables held constant, on net profit and equity of the Bank is the same as

the total amount with a negative sign as presented in the above table.




F-131


(e) Interest rate risk

The Bank estimates the effects of the changes in interest rates over the profitability of the Bank by

analyzing TL and foreign currency denominated interest rate sensitive assets and liabilities consideringboth their interest components as being fixed rate or variable rate and also analyzing their weights

among the Bank’s total assets and liabilities. Long or short positions arising from interest rate risk

are determined by currency types at the related maturity intervals (up to 3 months, 3 months to

1 year, 1 year to 5 years and over 5 years) as of the period remaining to repricing date, considering

the repricing of TL and foreign currency-denominated interest sensitive assets and liabilities at

maturity date (for fixed rate) or at interest payment dates (for floating rate). By classifying interest

sensitive assets and liabilities according to their repricing dates, Bank’s exposure to possible variations

in market interest rates are determined.

The Bank determines maturity mismatches of assets and liabilities by analyzing the weighted average

days to maturity of TL and foreign currency-denominated (for each currency and in total in terms oftheir US$ equivalents) assets and liabilities.

According to the Risk Management Policy approved by the Board of Directors, the Bank emphases

the matching of assets and liabilities with fixed and floating interest rates and under differentcurrencies and also pays special attention to the level of maturity mismatch of assets and liabilities

with floating and fixed interest rates in relation to the asset size of the Bank in order to limit the

negative effects of interest rate changes on the Bank’s profitability.

As of 31 December 2009 and 2008, the tables below summarize the Bank’s assets and liabilities in

carrying amounts classified in terms of periods remaining to contractual repricing dates;

31 December 2009

Up to

3 months

3 months

to 1 year

1 year

to 5 years

Over

5 years

Non-

interest

bearing Total

Cash and due from banks ................... 2,054,795 — — — 4,402 2,059,197

Trading securities ................................ 45,677 23,089 78,050 3,333 — 150,149

Derivative financial instruments .......... 16,287 261 — — — 16,548

Loans and advances to customers....... 1,773,344 2,077,818 3,264 — — 3,854,426



– Held-to-maturity............................... 207,922 51,131 19,024 30,991 — 309,068



Other assets ......................................... — — — — 14,879 14,879

Total assets .......................................... 4,098,025 2,152,299 100,338 34,324 42,123 6,427,109

Funds borrowed .................................. 689,306 1,336,578 — — — 2,025,884




benefits ............................................. — — — — 9,963 9,963

Total liabilities ..................................... 771,959 1,884,570 — — 113,377 2,769,906

Net repricing gap ................................. 3,326,066 267,729 100,338 34,324 (71,254) 3,657,203




F-132


31 December 2008

Up to

3 months

3 months

to 1 year

1 year

to 5 years

Over

5 years

Non-

interest

bearing Total

Cash and due from banks ................... 600,769 — — — 4,405 605,174

Trading securities ................................ 32,175 4,312 — 8,269 — 44,756

Derivative financial instruments .......... 18,737 — — — — 18,737




– Held-to-maturity............................... 80,051 81,800 47,634 32,996 — 242,481



Other assets ......................................... — — — — 8,120 8,120

Total assets .......................................... 2,392,928 2,375,962 51,210 41,265 24,390 4,885,755

Funds borrowed .................................. 846,158 257,811 46,342 — — 1,150,311




benefits ............................................. — — — — 9,582 9,582

Total liabilities ..................................... 926,591 781,597 46,342 — 191,678 1,946,208

Net repricing gap ................................. 1,466,337 1,594,365 4,868 41,265 (167,288) 2,939,547

The tables below summaries the range for effective average interest rates by major currencies for

monetary financial instruments of the Bank at 31 December:

31 December 2009

US$ EUR JPY TL

(%) (%) (%) (%)

Assets




– Interbank money market placements ........ — — — 6.50


Derivative financial instruments ................... — — 2.26 —

Loans and advances to customers ................ 3.43 4.30 2.87 13.79Investment securities

– Held-to-maturity........................................ 6.56 — — 10.35





F-133


31 December 2008

US$ EUR JPY TL

(%) (%) (%) (%)

Assets




– Interbank money market placements ........ — — — 15.00


Derivative financial instruments ................... — — 2.26 —

Loans and advances to customers ................ 4.72 5.83 1.97 14.81Investment securities

– Held-to-maturity........................................ 6.46 — — 20.12


As of 31 December 2009 and 2008, the effect of the change in interest rates by (+) 1% and (-) 1%

with all other variables held constant, on current year net profit of the Bank is as follows:


(+) 1% (-) 1% (+) 1% (-) 1%

Gain/(Loss)

Effect

Gain/(Loss)

Effect

Gain/(Loss)

Effect

Gain/(Loss)

Effect

TL ................................................................. (1,221) 1,030 897 (1,046)

US$ ............................................................... 2,606 (3,002) 2,005 (1,940)EUR.............................................................. (1,646) 1,643 119 (123)

Other foreign currencies ............................... 28 (28) (871) 871

Total.............................................................. (233) (357) 2,150 (2,238)

(f) Liquidity risk

A major objective of the Bank’s asset and liability management is to ensure that sufficient liquidity is

available to meet the Bank’s commitments and to satisfy the Bank’s own liquidity needs. The Bankmeasures and manages its cash flow commitments on a daily basis, and maintains liquid assets

determined by the Board of Directors which it judges sufficient to meet its commitments.

The matching and controlled mismatching of the maturities and interest rates of assets and liabilities

is fundamental to the liquidity management of the Bank. The ability to fund the existing and

prospective debt requirements is managed by maintaining sufficient cash and marketable securities, the

availability of funding through an adequate amount of committed credit lines and the ability to close

out market positions. It is unusual for banks ever to be completely matched since the maturity,

interest rates and the types of business transactions are different. An unmatched position potentially

enhances profitability, but also increases the risk of losses. The maturities of assets and liabilities and

the ability to replace, at an acceptable cost, interest-bearing liabilities as they mature, are importantfactors in assessing the liquidity of the Bank and its exposure to changes in interest rates and

exchange rates.

The Bank uses the TL and foreign currency cash flow schedules prepared weekly, monthly and

annually cash in the decision making process of the liquidity management.




F-134


As of 31 December 2009 and 2008, the table below analyses the assets and liabilities of the Bank into

relevant maturity groupings based on the remaining period at balance sheet date to the contractual

maturity dates.

31 December 2009

Demand

and up to

3 months

3 months

to 1 year

1 year

to 5 years

Over

5 years

No

maturity Total

Cash and due from banks ................... 2,054,795 — — — 4,402 2,059,197


Derivative financial instruments .......... 7,596 8,952 — — — 16,548

Loans and advances to customers....... 1,520,708 2,118,524 207,358 7,836 — 3,854,426



– Held-to-maturity............................... 138,896 57,389 81,792 30,991 — 309,068



Other assets ......................................... — — — — 14,879 14,879

Total assets .......................................... 3,767,672 2,207,954 367,200 42,160 42,123 6,427,109

Funds borrowed .................................. 509,954 1,131,100 177,630 207,200 — 2,025,884

Derivative financial instruments .......... 1,614 960 266 2,449 — 5,289



benefits ............................................. — — — — 9,963 9,963

Total liabilities ..................................... 589,574 1,679,410 177,896 209,649 113,377 2,769,906

Net liquidity gap .................................. 3,178,098 528,544 189,304 (167,489) (71,254) 3,657,203




F-135


31 December 2008

Demand

and up to

3 months

3 months

to 1 year

1 year

to 5 years

Over

5 years

No

maturity Total

Cash and due from banks ................... 600,769 — — — 4,405 605,174


Derivative financial instruments .......... 4,344 — 14,393 — — 18,737




– Held-to-maturity............................... 33,807 76,297 93,377 39,000 — 242,481



Other assets ......................................... — — — — 8,120 8,120

Total assets .......................................... 2,099,364 2,498,198 216,534 47,269 24,390 4,885,755

Funds borrowed .................................. 574,892 317,952 158,995 98,472 — 1,150,311

Derivative financial instruments .......... 438 — 2,219 4,042 — 6,699



benefits ............................................. — — — — 9,582 9,582

Total liabilities ..................................... 576,547 914,255 161,214 102,514 191,678 1,946,208

Net liquidity gap .................................. 1,522,817 1,583,943 55,320 (55,245) (167,288) 2,939,547

The undiscounted cash flows of the financial liabilities of the Bank into relevant maturity grouping

based on the remaining period at 31 December 2009 and 2008 to the contractual maturity dates are

presented in the tables below:31 December 2009

Demand

and up to

3 months

3 months

to 1 year

1 year

to 5 years

Over

5 years

No

maturity Total

Funds borrowed .................................. 513,266 1,163,798 222,421 229,541 — 2,129,026

Other liabilities .................................... 79,620 548,310 266 2,449 113,377 744,022

Total liabilities ..................................... 592,886 1,712,108 222,687 231,990 113,377 2,873,048

31 December 2008

Demand

and up to

3 months

3 months

to 1 year

1 year

to 5 years

Over

5 years

No

maturity Total

Funds borrowed............................ 587,724 319,720 171,869 125,188 — 1,204,501

Other liabilities .................................... 74,978 522,821 2,219 4,042 191,678 795,738

Total liabilities ..................................... 662,702 842,541 174,088 129,230 191,678 2,000,239




F-136


The undiscounted cash inflows and outflows of derivative transactions of the Bank at 31 December

2009 and 2008 are presented in the tables below:

31 December 2009

Up to

3 months

3 months

to 1 year

1 year

to 5 years

Over

5 years Total


Foreign exchange derivatives:

– Outflow......................................... 563,861 29,800 — — 593,661– Inflow ........................................... 573,206 30,750 — — 603,956


– Outflow......................................... 8,266 22,944 9,633 1,026 41,869

– Inflow ........................................... 9,747 28,238 7,833 1,070 46,888

Total Outflow................................... 572,127 52,744 9,633 1,026 635,530

Total Inflow ..................................... 582,953 58,988 7,833 1,070 650,844

31 December 2008

Up to3 months

3 monthsto 1 year

1 year to5 years

Over5 years Total


Foreign exchange derivatives:

– Outflow......................................... 165,258 — — — 165,258

– Inflow ........................................... 170,032 — — — 170,032


– Outflow......................................... 9,099 10,141 40,142 3,144 62,526

– Inflow ........................................... 10,743 11,374 45,115 2,386 69,618

Total Outflow................................... 174,357 10,141 40,142 3,144 227,784

Total Inflow ..................................... 180,775 11,374 45,115 2,386 239,650

(g) Operational risk

Operational risk is the risk of loss due to human or system errors, incompatibility or failure of

internal business processes, or external events.

The Bank seeks to minimize losses from operational risk by establishing effective internal control

systems which prevent or detect all errors and situations which might cause loss through failure of

people or processes in such a way that losses are avoided or reduced to the minimum possible extent.

The Bank has established internal control mechanisms in order to be able to manage the operational

risks and these mechanisms are audited by the internal audit and inspection unit of the Bank.

Financial losses occurring as a result of the operational risk together with the underlying reasons arereported to the Audit Committee, top management and the Board of Directors by the Risk

Management Department and necessary actions are taken according to the decision given by the

Board of Directors.

For the regulatory purposes and consideration in statutory capital adequacy ratio, the Bank calculates

the amount subject to operational risk based the on last 3 years’ gross income of the Bank for the

years ended 2008, 2007 and 2006 with the basic indicator method in accordance with the ‘‘The




F-137


Calculation of the Amount Subject to Operational Risk’’ Arrangement under the ‘‘Regulation

Regarding Measurement and Evaluation of Banks’ Capital Adequacy Ratio’’ published in the Official

Gazette No. 26333 dated 1 November 2006. As of 31 December 2009, the total amount subject to

operational risk is calculated as TL817,780 thousand (2008: TL795,082 thousand).

(h) Fair value of financial instruments

Fair value is the amount at which a financial instrument could be exchanged in a current transaction

between willing parties, other than in a forced sale or liquidation, and is best evidenced by a quoted

market price, if one exists.

The estimated fair values of financial instruments have been determined by the Bank using available

market information and appropriate valuation methodologies. However, judgment is necessarily

required to interpret market data to develop the estimated fair value. Accordingly, the estimates

presented herein are not necessarily indicative of the amounts the Bank could realize in a current

market exchange.

A market does not presently exist for term loans which would facilitate obtaining prices for

comparative instruments, and if sold or settled prior to their stated maturity dates, these instruments

would bear transaction costs in the form of fees or discounts. Accordingly, fair value has not been

computed for these instruments and net book amounts are considered to be a reasonable estimate of

the fair value. Balances denominated in foreign currencies are translated at year-end exchange rates.

The following methods and assumptions were used to estimate the fair value of the Bank’s financial

instruments:

(i) Financial assets

The fair values of certain financial assets carried at cost, including cash and due from banks(including receivables from CBRT) are considered to approximate their respective carrying values due

to their short-term nature.

The fair value of investment securities has been estimated based on market prices at balance sheet

dates.

Loans and advances to customers are net of provisions for impairment. The estimated fair value of

loans and advances to customers represents the discounted amount of future cash flows at current

market interest rates.

(ii) Financial liabilities

The fair values of funds borrowed are based on market prices or are based on discounted cash flowsusing current interest rates prevailing at the balance sheet date.

(iii) Derivative financial instruments

The fair values of foreign exchange and cross-currency swaps have been estimated based on quoted

market rates prevailing at the balance sheet date (Notes 7 and 22).




F-138


The following table summarises the carrying amounts and fair values of those financial assets and

liabilities not presented on the Bank’s balance sheet at their fair value.


Carrying

value Fair value

Carrying

value Fair value

Financial assets:

Cash and due from banks ............................ 2,059,197 2,059,197 605,174 605,174


– Held to maturity........................................ 309,068 314,519 242,481 240,881

Loans and advances to customers ................ 3,854,426 3,872,236 3,954,622 3,986,098

Financial liabilities:

Funds borrowed ........................................... 2,025,884 2,032,114 1,150,311 1,164,506




F-139


The following table summarises the fair values of those financial assets and liabilities presented on the

Bank’s balance sheet based on the hierarchy of valuation technique as of 31 December 2009 and

2008.


Financial assets at fair value through profit

and loss


– Debt securities ........................................... 150,149 — — 150,149

– Derivatives ................................................. — 16,548 — 16,548


– Investment securities – equity.................... 11,744 — 2,000(****) 13,744

Total assets 161,893 16,548 2,000 180,441

Financial liabilities at fair value through profit

and loss


– Derivatives ................................................. — 5,289 — 5,289

Total liabilities .............................................. — 5,289 — 5,289


Financial assets at fair value through profit

and loss


– Debt securities ........................................... 44,756 — — 44,756

– Derivatives ................................................. — 18,737 — 18,737


– Investment securities – equity.................... 3,126 — — 3,126

Total assets ................................................... 47,882 18,737 — 66,619

Financial liabilities at fair value through profit

and loss


– Derivatives ................................................. — 6,699 — 6,699

Total liabilities .............................................. — 6,699 — 6,699

(*) Fair values are calculated with quoted prices (unadjusted) in active markets for listed equity securities and debt instruments.This level includes listed equity securities and debt instruments on exchanges.

(**) Fair values are calculated with observable input parameters (either directly as prices or indirectly as derived from prices) forderivative transactions. This level includes OTC derivative contracts.

(***) Fair values are calculated with unobservable inputs for equity instruments.

(****) Note 9a.




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(i) Capital management

Banks in Turkey are required to comply with capital adequacy guidelines promulgated by the BRSA,

which are based upon the standards established by the Bank of International Settlements (‘‘BIS’’).These guidelines require banks to maintain adequate levels of regulatory capital against risk-bearing

assets and off-balance sheet exposures.

A bank’s capital adequacy ratio is calculated by taking the aggregate of its Tier I capital (which

comprises paid-in capital, reserves, retained earnings and profit for the current period minus period

loss (if any), prepared expenses, leasehold improvements and intangible assets), its Tier II capital

(which comprises general loan and free reserves, revaluation funds and subordinated loans obtained)

and its Tier III capital (which comprises certain qualified subordinated loans in accordance with BIS

guidelines) minus deductions (which comprises participations to financial institutions, special and

preliminary and negative differences between fair and book values of subsidiaries, subordinated loans

extended, goodwill and capitalized costs), and dividing this aggregate by risk weighted assets, whichreflect both credit risk, market risk and operational risk. In accordance with these guidelines, banks

must maintain a total capital adequacy ratio of a minimum of 8%.

The Bank has complied with the minimum capital adequacy ratio requirement, stated above, for the

years ended 31 December 2009 and 2008.

The Bank’s regulatory capital position on at 31 December 2009 and 2008 were as follows:

31 December

2009

31 December

2008

Tier I capital.................................................................................................. 3,682,327 2,979,882

Tier II capital ................................................................................................ 28,712 19,715

Deductions..................................................................................................... — (2,676)

Total regulatory capital (A) .......................................................................... 3,711,039 2,996,921

Risk-weighted assets (including market and operational risk) (B) ............... 2,951,717 2,856,404

Capital adequacy ratio (%) (A)/(B) ................................................................ 125.72 104.92

NOTE 4 – CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS IN APPLYING

ACCOUNTING POLICIES

The Bank makes estimates and assumptions that affect the reported amounts of assets and liabilities

within the next financial period. Estimates and judgments are continually evaluated and are based on

historical experience and other factors, including expectations of future events that are believed to be

reasonable under the circumstances.

(a) Impairment losses on loans and advances to customers

The Bank reviews its loan portfolio periodically, to assess impairment. The mentioned assessment

includes the estimation of future cash flows. Management uses estimates based on historical loss

experience for assets with credit risk characteristics and objective evidence of impairment similar to

those in the portfolio when scheduling its future cash flows.

(b) Fair value of derivatives

The fair values of financial instruments that are not quoted in active markets are determined by using

valuation techniques. Where valuation techniques (for example, models) are used to determine fair

values, they are validated and periodically reviewed by qualified personnel independent of the area

that created them.




F-141


(c) Impairment of available-for-sale equity investments

The Bank determines that available-for-sale equity investments are impaired when there has been a

significant or prolonged decline in the fair value below its cost. This determination of what issignificant or prolonged requires judgment. In making this judgment, the Bank evaluates among other

factors, the normal volatility in share price for listed equity investments. In addition, impairment may

be appropriate when there is evidence of deterioration in the financial health of the investor, industry

and sector performance, changes in technology, and operational and financial cash flows.

(d) Held-to-maturity investments

The Bank follows the guidance of IAS 39 on classifying non-derivative financial assets with fixed ordeterminable payments and fixed maturity as held-to-maturity. This classification requires significant

judgment. In making this judgment, the Bank evaluates its intention and ability to hold such

investments to maturity. If the Bank fails to keep these investments to maturity other than for the

specific circumstances – for example, selling an insignificant amount close to maturity – it will be

required to reclassify the entire class as available-for-sale. The investments would therefore be

measured at fair value not at amortized cost.

NOTE 5 – CASH AND DUE FROM BANKS

31 December

2009

31 December

2008

Cash funds:

Cash on hand ................................................................................................ 9 14

9 14

Current accounts and demand deposits:

CBRT ............................................................................................................ 627 65Foreign banks................................................................................................ 3,444 4,230

Domestic banks ............................................................................................. 322 96

4,393 4,391

Time deposits:

Foreign banks................................................................................................ 647,488 32,176

Domestic banks ............................................................................................. 112,173 106,000

759,661 138,176

Interbank money market placements .............................................................. 1,295,134 462,593

Total cash and due from banks ...................................................................... 2,059,197 605,174




F-142


Cash and cash equivalents included in the statements of cash flows for the year ended 31 December is

as follows:

31 December

2009

31 December

2008

31 December

2007

Cash and due from banks..................................................... 2,059,197 605,174 668,608

Less: interest accruals............................................................ (1,052) (1,217) (591)

Less: time deposits with maturities exceeding 3 months ...... (9,000) — —

Cash and cash equivalents...................................................... 2,049,145 603,957 668,017

Cash and cash equivalents are mainly composed of bank deposits and interbank money market

placements with original maturity periods of less than three months as of 31 December 2009, 2008and 2007.

NOTE 6 – TRADING SECURITIES

31 December

2009

31 December

2008

Government bonds........................................................................................ 117,917 18,945

Treasury Bills ................................................................................................ 28,900 17,543Eurobonds ..................................................................................................... 3,332 8,268

150,149 44,756

There are no securities pledged under repurchase agreements.

As of 31 December 2009, government bonds and treasury bills amounting to TL64,908 thousand

(2008: TL7,738 thousand) have been pledged as collateral with the CBRT.

NOTE 7 – DERIVATIVE FINANCIAL INSTRUMENTS

The Bank utilises the following derivative instruments:

‘‘Currency and interest rate swaps’’ are commitments to exchange one set of cash flows for another.

Swaps result in an economic exchange of currencies or interest rates. Currency swaps involve the

exchange of principal as well. The Bank’s ‘‘credit risks’’ represents the potential cost of replacing theswap contracts if counterparties fail to perform their obligation. This risk is monitored on an ongoing

basis with reference to the current fair value, a proportion of the notional amount of the contracts

and the liquidity of the market. To control the level of credit risk taken, the Bank assesses

counterparties using the same techniques as for its lending activities.

The notional amounts of certain types of financial instruments provide a basis for comparison with

instruments recognised on the balance sheet but do not necessarily indicate the amounts of future

cash flows involved or the current fair value of the instruments and, therefore, do not indicate the

Bank’s exposure to credit or price risks. The derivative instruments become favorable (as assets) or

unfavorable (as liabilities) as a result of fluctuations in foreign exchange rates and interest rates. The

aggregate contractual or notional amount of derivative financial instruments on hand, the extent towhich instruments are favorable or unfavorable and, thus the aggregate fair values of derivative

financial assets and liabilities can fluctuate significantly from time to time.




F-143


The fair values of derivative instruments held as of 31 December 2009 and 2008 are set out in the

following table:


Fair value Fair value

Assets Liabilities Assets Liabilities

Interest rate swaps purchases and sales........ — (3,356) — (5,332)

Foreign currency swaps purchases and sales 7,856 (1,614) 4,343 (438)

Cross currency swaps purchases and sales ... 8,692 (319) 14,394 (929)

Total derivative assets/(liabilities) .................. 16,548 (5,289) 18,737 (6,699)

As also explained in Note 2 (c), even though certain derivative transactions, while providing effective

economic hedges under the Bank’s risk management position, do not qualify for hedge accountingunder the specific rules in IAS 39, and are therefore treated as derivatives held for trading. The Bank

extends medium-term project finance loans in US$ at floating rate by using JPY fixed-rate medium

term borrowings. In order to hedge the exchange rate and interest rate risks attached to this

transaction cross currency swap transactions were performed with foreign banks.

The national amounts of derivative transactions are explained in detail in Note 22.




F-144


NOTE 8 – LOANS AND ADVANCES TO CUSTOMERS

31 December

2009

31 December

2008

Short-termFinancial institutions ..................................................................................... 1,812,309 2,251,981

Export guaranteed loans ............................................................................... 469,616 730,389

Fund sourced loans (Note 15)....................................................................... 600,615 585,873

Foreign country loans (political risks) .......................................................... 14,718 14,607

Specialised loans............................................................................................ 29,018 34,654

Discount loans............................................................................................... 602,312 554

Other guaranteed loans ................................................................................. 56,360 14

3,584,948 3,618,072

Medium and long-term

Financial institutions ..................................................................................... 35,169 211,377

Export guaranteed loans ............................................................................... 108,587 94,211Foreign country loans (political risks) .......................................................... 72,482 48,036

Specialized loans............................................................................................ 3,681 9,358

Export guaranteed investment loans ............................................................. 12,876 2,629

Other ............................................................................................................. 86,763 3,589

319,558 369,200

Performing loans ............................................................................................ 3,904,506 3,987,272

Loans under close monitoring....................................................................... 4,160 17,689

Impaired loans and advances ........................................................................ 103,498 56,653

Gross loans and advances to customers .......................................................... 4,012,164 4,061,614

Allowance for loan losses.............................................................................. (157,738) (106,992)

Net loans and advances to customers ............................................................. 3,854,426 3,954,622

The Bank provides 100% impairment provision for non-performing loans amounting to TL103,498

thousand (2008: TL56,653 thousand) comprising 2.58% (2008: 1.39%) of the total loans outstanding at

31 December 2009. The Bank also provided an additional impairment provision amounting to

TL54,240 thousand (2008: TL50,339 thousand) for other components of the loan portfolio to cover

the inherent risk of loss present in the lending relationship.

Movements in the provision for loan losses for the years ended 31 December 2009 and 2008 are as

follows:

2009 2008

Balance at the beginning of the year .............................................................. 106,992 86,170Recoveries (Note 20) ..................................................................................... (1,593) (455)


Balance at the end of the year ....................................................................... 157,738 106,992




F-145


Loans and advances to the public and private sector are as follows:

31 December

2009

31 December

2008

Public sector .................................................................................................. 366,687 404,802Private sector ................................................................................................. 3,645,477 3,656,812

4,012,164 4,061,614

NOTE 9 – INVESTMENT SECURITIES

(a) Available-for-sale securities:

31 December

2009

31 December

2008

Equity securities– Listed.......................................................................................................... 11,744 3,126

– Unlisted ...................................................................................................... 2,000 —

Total available-for-sale securities 13,744 3,126

There are no securities pledged under repurchase agreements or pledged as collateral with financial

institutions.

As explained in Note 2 (d) unrealised gain and losses arising from changes in the fair value of

securities classified as ‘‘available-for-sale’’ are recognised as ‘‘other reserves’’ in the shareholders’

equity unless there is a permanent decline in the fair values of such assets, which are charged to the

income statement.

The breakdown of available-for-sale equity securities at 31 December 2009 and 2008 are as follows:

Share % Carrying Amount

Equity securities 2009 2008 2009 2008 Business

Garanti Faktoring

Hizmetleri A.S.................. 9.78 9.78 11,744 3,126 Factoring

Kredi Garanti Fonu A.S.(*).. 1.66 — 2,000 —

Financial

services

13,744 3,126

(*) On 15 October 2009, the Bank acquired 1.66% interest in Kredi Garanti Fonu A.S. (Credit Guarantee Fund) established toprovide financing support to small and medium size enterprises with a total consideration of TL2,000 thousand as cash andTL2,000 thousand as share capital commitment.




F-146


(b) Held-to-maturity securities:

31 December

2009

31 December

2008

Debt Securities– Government Bonds .................................................................................... 217,855 174,961

– Eurobonds .................................................................................................. 49,664 51,293

– Treasury Bills ............................................................................................. 41,549 14,089

– Government bonds denominated in foreign currency................................ — 2,138

Total held-to-maturity securities .................................................................... 309,068 242,481

As of 31 December 2009, government bonds and treasury bills amounting to TL165,504 thousand(2008: TL179,606 thousand) have been pledged as collateral with the CBRT and Istanbul Stock

Exchange-Settlement and Custody Bank.

The movement of held-to-maturity securities for the years ended 31 December 2009 and 2008 are asfollows:

2009 2008

Balance at 1 January ..................................................................................... 242,481 135,660

Purchases ....................................................................................................... 224,736 72,129

Transfer from trading securities(*)................................................................. — 66,054

Redemptions.................................................................................................. (157,516) (53,069)

Foreign exchange difference.......................................................................... (2,823) 18,268Interest income accruals ................................................................................ 2,190 3,439

Balance at 31 December................................................................................. 309,068 242,481

(*) As of 31 December 2008, the Bank has reclassified its financial assets with a fair value of TL66,054 thousand from tradingportfolio to held to maturity investment securities portfolio due to the change in its intention to hold the financial assets untilmaturity in accordance with the amendment in IAS 39 ‘‘Financial Instruments: Recognition and Measurement’’ and IFRS 7‘‘Financial Instruments: Disclosures’’ announced by IASB on 13 October 2008. As of 31 December 2009, the fair value ofunmatured reclassified financial assets is TL29,349 thousand which is carried at amortised cost of TL28,813 thousand under held-to-maturity securities portfolio. Had the reclassification not been performed, the cumulative net profit of the Bank in relation withthe unmatured reclassified financial assets would have increased by TL536 thousand and TL1,260 thousand of this amount wouldhave been recognised as loss for the year ended 31 December 2009.




F-147


NOTE 10 – PROPERTY AND EQUIPMENT

Land and

Buildings Vehicles

Other

tangibles Total

At 1 January 2008

Cost............................................................... 17,134 607 9,547 27,288


Net book amount........................................... 8,334 35 975 9,344


Opening net book amount............................ 8,334 35 975 9,344

Additions ...................................................... — — 136 136

Disposals, net(*) ............................................ — — — —


Closing net book amount ............................... 8,012 15 705 8,732

At 31 December 2008

Cost............................................................... 17,134 553 9,659 27,346


Net book amount........................................... 8,012 15 705 8,732


Opening net book amount............................ 8,012 15 705 8,732

Additions ...................................................... — — 405 405Disposals, net................................................ — — — —



At 31 December 2009

Cost............................................................... 17,134 553 10,064 27,751


Net book amount........................................... 7,690 — 754 8,444

(*) In 2008, the Bank sold vehicles and other tangibles amounting to TL54 thousand and TL24 thousand, respectively which werefully depreciated.




F-148


NOTE 11 – INTANGIBLE ASSETS

31 December

2009

31 December

2008

RightsOpening net book amount ............................................................................ 7 —

Additions(*).................................................................................................... 801 8

Disposals ....................................................................................................... — —

Amortisation charge (-) ................................................................................. 154 1

Net book amount ........................................................................................... 654 7

Rights

Cost ............................................................................................................... 1,182 381

Accumulated amortisation (-) ....................................................................... 528 374

Net book amount ........................................................................................... 654 7

(*) As of 31 December 2009, additions represents computer software purchases.

NOTE 12 – OTHER ASSETS

31 December

2009

31 December

2008

Receivables from Development and Support Fund...................................... 7,254 7,408

Insurance premiums receivables .................................................................... 3,827 2,802

Upfront fees paid for syndicated borrowings ............................................... 8,186 2,646

Receivables from reinsurance companies ...................................................... 1,265 461

Other ............................................................................................................. 1,601 2,211

22,133 15,528

Provision for impairment on other assets ..................................................... (7,254) (7,408)

14,879 8,120

As at 31 December 2009, US$447,071 (TL666 thousand, 2008: TL680 thousand) receivable from the

Development and Support Fund is due to the incomplete payment of General Headquarters of

Gendarme regarding the military equipment purchases. Rest of the receivables from the Development

and Support Fund, amounting to US$4,421,357 (TL6,588 thousand, 2008: TL6,728 thousand), arises

from the exchange losses due to the late transfer of the funds to the Bank from the Ministry of

Defense. As of 31 December 2009, there is no improvement in the collection of these receivables and100% provision is recognised as provision for impairment on other assets.




F-149


NOTE 13 – FUNDS BORROWED

31 December

2009

31 December

2008

Domestic Banks(*) ......................................................................................... 909,537 258,198Foreign Banks ............................................................................................... 1,116,347 892,113

Total funds borrowed ..................................................................................... 2,025,884 1,150,311

(*) Includes subordinated loans from Turkish Treasury amounting to TL211,430 thousand (2008: TL242,589 thousand).

The breakdown of funds borrowed is as follows:

31 December

2009

31 December

2008

Syndicated loans(i) ......................................................................................... 814,992 813,933CBRT Loans(ii) .............................................................................................. 481,209 390

T.C. Ziraat Bankası A.S.(iii).......................................................................... 216,898 —

Subordinated loans(iv).................................................................................... 211,430 242,589

World Bank (EFIL) loans(v).......................................................................... 86,178 1,093

Black Sea Trade and Development Bank(vi) ................................................. 61,326 —

Demir Halkbank NV – Netherlands(vii) ........................................................ 54,794 —

European Investment Bank(viii) ..................................................................... 53,707 —

Japan Bank for International Cooperation (‘‘JBIC’’)(ix)............................... 45,350 77,087Interbank money market loans ..................................................................... — 15,219

Total .............................................................................................................. 2,025,884 1,150,311

(i) The Bank, raised syndicated loan facilities at an amount EUR200 million (TL429,420 thousand) with a maturity of one year at 8April 2009 and at an amount EUR160 million (TL343,536 thousand) and US$25 million (TL37,250 thousand) with a maturity ofone year at 5 October 2009. As of 31 December 2009, total balance of these syndicated borrowings amount to TL810,206thousand and accruals on these borrowings amount to TL4,786 thousand.

(ii) The Bank obtained credit from CBRT within the framework of ‘‘Short Term Export Receivables Discount Loan’’ and ‘‘Pre-shipment Rediscount Loan’’ programs amounting to TL481,209 thousand as at 31 December 2009.

(iii) As of 31 December 2009, the outstanding balance of the borrowing with a maturity of one year, raised by T.C. Ziraat Bankası A.S.amounts to EUR100 million (TL214,710 thousand) and accrual on this borrowing amounts to TL2,188 thousand.

(iv) As of 31 December 2009, US$200 million of the Fiscal and Public Sector Adaptation Credit with a maturity of 15 April 2018,provided by the World Bank to Turkish Treasury in accordance with the agreement signed on 12 July 2001, is transferred to theBank for the development and support of the export oriented real sector. As of 31 December 2009, the outstanding principal andthe accrual on this funds borrowed amount to TL211,087 thousand and TL343 thousand, respectively.

(v) The outstanding balances of the two lines of credit from the World Bank as at 31 December 2009 amounts to TL73,459 thousand(equivalent of US$49,301 thousand) and TL12,485 thousand (equivalent of EUR5,815 thousand). Total accrual on theseborrowings amounts to TL234 thousand.

(vi) The outstanding balance of the borrowing with a maturity of five years, obtained from Black Sea Trade and Development Bank isUS$40 million (TL59,600 thousand). Total accrual on this borrowing amounts to TL1,726 thousand and the total amount ofborrowing is TL61,326 thousand as at 31 December 2009.

(vii) The outstanding balance of the borrowing obtained from Demir-Halkbank NV – Netherland amounts to EUR25 million(TL53,678 thousand). Total accrual on this borrowing amounts to TL1,116 thousand and the total amount of the borrowing isTL54,794 thousand as at 31 December 2009.

(viii) The Bank raised a loan facility from European Investment Bank at an amount EUR25 million (TL53,678 thousand) with a totalmaturity of 12 years. Total accrual on this borrowing amounts to TL29 thousand and the total amount of the borrowing isTL53,707 thousand as at 31 December 2009.

(ix) As of 31 December 2009, the Bank has raised two lines of credit from JBIC at an amount of JPY2,782 million (TL44,923thousand) with the guarantee of Turkish Treasury so as to support the projects executed by Turkish businessman with mediumand long-term financing in the third world countries. The accrual on this funds borrowed amount to TL427 thousand and the totalamount of the borrowing is TL45,350 thousand.




F-150


The repayment schedule of the funds borrowed of the Bank in 2009 was as follows:

Repayment Amount Repayment Dates

Demir Halkbank NV – Netherland ........................................ EUR10,000,000 30 October 2009

Bayerische Landesbank – Syndicated Loan............................ EUR250,000,000 26 March 2009Turkish Treasury, Subordinated loan ..................................... US$8,333,000 14 April 2009

Turkish Treasury, Subordinated loan ..................................... US$8,333,000 14 October 2009

JBIC ........................................................................................ JPY876,604,000 14 January 2009

JBIC ........................................................................................ JPY876,604,000 14 July 2009

Club Loan, Syndicated Loan .................................................. US$175,000,000 7 August 2009

NOTE 14 – TAXATION

The Bank is exempted from Corporate Tax upon the Act 3332 dated 25 March 1987 and article 4/b

of Act 3659 dated 26 September 1990, respectively. According to the 3rd article of Act number 3659,

the stated changes were valid from 1 January 1988. Accordingly, no deferred tax asset or liability is

present in the accompanying financial statements.

NOTE 15 – OTHER LIABILITIES

The principal components of other liabilities are as follows:

31 December

2009

31 December

2008

Turkish Treasury-current account-Iraq Credit ............................................. 594,606 579,864

Funds from United Nations Compensation Fund-Iraq Credit .................... 84,285 86,072

Funds............................................................................................................. 6,711 6,711

Vacation pay liability(*) ................................................................................. 4,885 4,319

Turkish Treasury ........................................................................................... — 83,600Other ............................................................................................................. 38,283 19,050

728,770 779,616

(*) Payment amounting to TL330 thousand was made from the vacation pay liability account during the year 2009.

As of 31 December 2009, the funds recorded under the Turkish Treasury current account consists ofthe funds transferred by the Turkish Treasury to the Bank to finance Iraq loans including the related

interest income and foreign exchange differences amounting to TL9,271 thousand (2008: TL12,880

thousand) and the principal amounting to TL585,335 thousand (2008: TL566,984 thousand). The total

amounting to TL594,606 thousand (2008: TL579,864 thousand) is recorded as ‘Fund Sourced loans’

under the account ‘Loans and advances to customers’ (Note 8). In addition, ‘Fund Sourced loans’

also include TL6,009 thousand (2008: TL6,009 thousand) of ‘Funds’ accounted under Other Liabilities

account. These funds are transferred to the Bank by Turkish Treasury and are covered by Turkish

Treasury. Therefore, the Bank does not reflect any gains or losses to the statements of income onsuch loans.

Funds from United Nations Compensation Fund consist of funds transferred by the United NationsCompensation Fund for projects in Iraq.

As of 31 December 2008, Turkish Treasury account amounting to TL83,600 thousand represents the

funds transferred from Turkish Treasury to the Bank as an advance for future capital increase.




F-151


NOTE 16 – RETIREMENT BENEFIT OBLIGATIONS

Under the Turkish Labor Law, the Bank is required to pay termination benefits to each employee

who has completed at least one year of service and whose employment is terminated without duecause, is called up for military service, dies or who retires after completing 25 years of service (20

years for women) and achieves the retirement age (58 for women and 60 for men). Since the

legislation was changed on 23 May 2002, there are certain transitional provisions relating to length of

service prior to retirement. The amount payable consists of one month’s salary limited to a maximum

of TL2,365.16 in full TL amount (2008: TL2,173.18).

The liability is not funded, as there is no funding requirement.

The reserve has been calculated by estimating the present value of the future probable obligation of

the Bank arising from the retirement of its employees.

IAS 19 ‘‘Employment Benefits’’ requires actuarial valuation methods to be developed to estimate the

enterprise’s obligation for such benefits. Accordingly, the following actuarial assumptions were used in

the calculation of the total liability as at 31 December 2009 and 2008:

31 December

2009

31 December

2008

Discount rate (%) .......................................................................................... 5.92 6.26

Rate to estimate the probability of retirement (%)....................................... 0.98 0.98

Additionally, the principal actuarial assumption is that the maximum liability for each year of service

would increase in line with inflation. Thus the discount rate applied represents the expected real rate

after adjusting for the effects of future inflation. As the maximum liability is revised semi-annually,

the maximum amount of TL2,427.04 in full TL amount, which is effective from 1 January 2010(1 January 2009: TL2,260.05), has been taken into consideration in calculating the reserve for

employment termination benefit of the Bank.

Movement in the reserve for employment termination benefits for the years ended 31 December 2009and 2008 are as follows:

2009 2008

1 January ....................................................................................................... 9,582 8,768

Paid during the year...................................................................................... (853) (376)


31 December .................................................................................................. 9,963 9,582




F-152


NOTE 17 – SHARE CAPITAL

The historical paid in share capital of the Bank is TL2,000,000 thousand (2008: TL1,326,336

thousand) and consists of 2 billion (2008: 1.5 billion) authorized shares with a nominal value of TL1each.

31 December

2009

31 December

2008

– Share capital............................................................................................... 2,000,000 1,500,000

– Capital commitments (-) ............................................................................ — 173,664

Historical share capital.................................................................................. 2,000,000 1,326,336

Adjustment to share capital .......................................................................... 812,518 812,518

Total paid in share capital ............................................................................. 2,812,518 2,138,854

The Bank is fully owned by Turkish Treasury.

The adjustment to share capital represents the restatement effect of cash and cash equivalentcontributions to share capital in terms of equivalent purchasing power at 31 December 2005 after

elimination of the accumulated deficit.

NOTE 18 – RETAINED EARNINGS AND RESERVES

Retained earnings as per the statutory financial statements other than legal reserves are available for

distribution, subject to the legal reserve requirement referred to below.

Under the Turkish Commercial Code and in accordance with the Articles of Association of the Bank,

the Bank is required to create the following legal reserves from appropriations of earnings, which are

available for distribution only in the event of liquidation or losses:

a) First legal reserve, appropriated at the rate of 5% of net income, until the total reserve is equal

to 20% of issued and fully paid-in share capital.

b) Second legal reserve, appropriated at the rate of 10% of the distribution of second dividend, in

excess of the first legal reserve, appropriated at a rate of 5% and first dividend, appropriated at

a rate of 8%.




F-153


NOTE 19 – NET INTEREST INCOME

31 December

2009

31 December

2008

Interest income on:Interest on loans and advances to customers................................................ 323,090 356,350

Interest on interbank money market placements .......................................... 67,439 45,494

Interest on investment and trading securities................................................ 37,173 43,226

Interest on deposits with banks..................................................................... 9,731 22,778

Other interest income .................................................................................... 539 225

Total interest income...................................................................................... 437,972 468,073

Interest expense on:Interest on funds borrowed........................................................................... (50,617) (46,496)

Other interest expenses.................................................................................. (108) (130)

Total interest expense .................................................................................... (50,725) (46,626)

Net interest income ........................................................................................ 387,247 421,447




F-154


NOTE 20 – OTHER OPERATING INCOME

31 December

2009

31 December

2008

Insurance premium income ........................................................................... 23,783 21,999Commission from reinsurance companies..................................................... 5,962 7,235

Recoveries from non-performing loans (Note 8) .......................................... 1,593 455

Other ............................................................................................................. 3,669 2,818

Total .............................................................................................................. 35,007 32,507

NOTE 21 – OPERATING EXPENSES

31 December

2009

31 December

2008

Staff costs ...................................................................................................... 20,777 26,693

Premiums paid to insurance companies ........................................................ 11,893 12,463

KOSGEB fee(*) .............................................................................................. 6,990 7,572

Premiums paid to reinsurance companies under political risk ..................... 2,796 2,863

Research expenses ......................................................................................... 2,410 2,045

Employment termination benefits and unused vacation provision expense.. 2,130 1,847

BRSA premium expense................................................................................ 1,946 1,483

Taxes and duties expenses............................................................................. 1,132 944Travel expenses.............................................................................................. 919 785

Communication and utility expenses ............................................................ 851 680

Depreciation and amortisation charges (Notes 10 and 11)........................... 847 749

Rental expenses ............................................................................................. 796 635

Computer usage expenses.............................................................................. 301 566

Repair and maintenance expenses................................................................. 112 553

Other ............................................................................................................. 7,813 13,986

61,713 73,864

(*) As the Bank’s more than 50% of the paid-in share capital is owned by the government entities, the Bank is obliged to pay annualfee at a rate of 2% of the corporate tax base of the Bank to Small and Medium Industries Development Organization(‘‘KOSGEB’’) in accordance with the establishment law of KOSGEB.

NOTE 22 – COMMITMENTS AND CONTINGENT LIABILITIES

In the normal course of banking activities, the Bank undertakes various commitments and incurscertain contingent liabilities that are not presented in these balance sheets, including letters of

guarantee, other guarantees and off-balance sheet derivative instruments. The management does not

expect any material losses as a result of these transactions. The following is a summary of significant

commitments and contingent liabilities:

Legal proceedings

At 31 December 2009, there are 22 legal proceedings outstanding against the Bank amounting toUS$2,199,185, EUR15,000 and TL207,488. As at 31 December 2009, the Bank has not provided a

provision for these legal proceedings, since possible outflow of resources embodying economic benefits

to settle these contingent liabilities will be immaterial.




F-155


Commitments under derivative instruments:

The breakdown of swap transactions at 31 December 2009 and 2008 is as follows:


Currency

Foreign

currency

amount TL 000

Foreign

currency

amount TL 000

Transaction Type

Interest rate swap purchases ............. US$ 30,000,000 44,700 30,000,000 45,648

Foreign currency swap purchases ..... EUR 20,000,000 42,942 21,000,000 45,023

TL 561,014,240 561,014 116,953,500 116,954

JPY — — 478,350,000 8,055

Cross-currency swap purchases......... JPY 2,190,228,568 35,361 3,276,857,143 55,178

Total purchases 684,017 270,858

Interest rate swap sales ..................... US$ 30,000,000 44,700 30,000,000 45,648

Foreign currency swap sales ............. US$ 398,430,000 593,661 108,608,130 165,258

Cross-currency swap sales................. US$ 18,142,222 27,032 27,174,135 41,348

Total sales ......................................... 665,393 252,254

1,349,410 523,112

Maturity analysis of swap transactions is as follows:

31 December 2009

Up to

3 months

3 months

to 1 year

1 year

to 5 years

Over

5 Years Total

Interest rate swap purchases — — 16,390 28,310 44,700Foreign currency swap

purchases.......................... 573,206 30,750 — — 603,956

Cross-currency swap

purchases.......................... 8,772 26,589 — — 35,361

Total purchases ..................... 581,978 57,339 16,390 28,310 684,017



Cross-currency swap sales .... 6,729 20,303 — — 27,032

Total sales............................. 570,590 50,103 16,390 28,310 665,393




F-156


31 December 2008

Up to

3 months

3 months

to 1 year

1 year

to 5 years

Over

5 Years Total

Interest rate swap purchases — — 16,738 28,910 45,648


purchases.......................... 170,032 — — — 170,032

Cross-currency swap

purchases.......................... 9,149 9,149 36,880 — 55,178

Total purchases ..................... 179,181 9,149 53,618 28,910 270,858


Foreign currency swap sales. 165,258 — — — 165,258

Cross-currency swap sales .... 6,871 6,871 27,606 — 41,348

Total sales............................. 172,129 6,871 44,344 28,910 252,254

The above tables summarise the Bank’s derivative transactions that will be settled on a net basis into

relevant maturity groupings based on the remaining period at the balance sheet date, in respective

currencies. Accordingly, the difference between the ‘‘sale’’ and ‘‘purchase’’ transactions represents the

net exposure of the Bank with respect to commitments arising from these transactions.

Credit related commitments:

Letters of guarantee, which represent irrevocable assurances that the Bank will make payments in the

event that a customer cannot meet its obligations to third parties, carry the same credit risk as loans.

Cash requirements under these guarantees are considerably less than the amount of the commitment

because the Bank does not generally expect the third party to draw funds under the agreement.

The total outstanding contractual amount of commitments to extend credit does not necessarily

represent future cash requirements, since many of these commitments will expire or terminate without

being funded.

The following table shows the outstanding credit related commitments of the Bank at 31 December

2009 and 2008:

31 December

2009

31 December

2008

Guarantees and warranties

Endorsements

– Foreign currency ........................................................................................ 481,209 390

Other guarantees


841,152 359,771

Commitments

Loan granting commitments


Other ............................................................................................................. 2,000 —

15,523 21,558




F-157


The Bank provides cover for Turkish exporters, against commercial and political risks by offering

variety of insurance programs. Other guarantees include the Bank’s commitment related with the

underwritten short-term commercial and political risks.

NOTE 23 – RELATED PARTIES

Parties are considered to be related if one party has the ability to control the other party or exercise

significant influence over the other party in making financial or operational decisions. For the purpose

of these financial statements the shareholders of the Bank together with state-controlled entities in

Turkey are considered and referred to as related parties.

A number of banking transactions were entered into with related parties in the normal course of

business.

(i) Balances with related parties:

31 December

2009

31 December

2008

Due from banks ............................................................................................ 80,941 23,070

Loans and advances to customers................................................................. 366,687 404,802



– Held to maturity ........................................................................................ 309,068 242,481Funds borrowed ............................................................................................ 909,537 242,979

Other liabilities .............................................................................................. 6,711 6,711

(ii) Transactions with related parties:

31 December

2009

31 December

2008

Interest income on deposits with banks ........................................................ 68 2,039

Interest income on investment and trading securities ................................... 37,173 43,226

Interest income on loans and advances to customers ................................... 34,950 36,201

Interest expense on funds borrowed ............................................................. 20,792 9,829

(iii) Remuneration of key management personnel:

31 December

2009

31 December

2008

Salaries and other short-term employee benefits........................................... 674 627

Post employment benefits.............................................................................. 233 205




ISSUER

TÜRKİYE İHRACAT KREDİ BANKASI A.Ş. (EXPORT CREDIT BANK OF TURKEY, INC.)Müdafaa Caddesi 2006100 Bakanlýklar

AnkaraTurkey

INITIAL PURCHASERS

Barclays Bank PLC Citigroup Global Markets Limited5 The North Colonnade Citigroup Centre

Canary Wharf Canada SquareLondon E14 4BB Canary WharfUnited Kingdom London E14 5LB

United Kingdom

Standard Chartered Bank ING Bank N.V., London Branch1 Basinghall Avenue 60 London WallLondon EC2V 5DD London EC2M 5TQ

United Kingdom United Kingdom

FISCAL AGENT REGISTRAR

Citibank, N.A., London Branch Citigroup Global MarketsCitigroup Centre Deutschland AGCanada Square Reuterweg 16Canary Wharf 60323 Frankfurt am Main

London E14 5LB GermanyUnited Kingdom

LEGAL COUNSEL TO THE INITIAL LEGAL COUNSEL TO THE INITIALPURCHASERS AS TO ENGLISH AND UNITED PURCHASERS AS TO TURKISH LAW AND

STATES LAW TURKISH TAX COUNSEL

Allen & Overy LLP Paksoy Ortak Avukat BürosuOne Bishops Square Sun Plaza

London E1 6AD Bilim Sokak No: 5 K:14United Kingdom Maslak, 34398 Istanbul

Turkey

LEGAL COUNSEL TO THE ISSUER AS TO LEGAL COUNSEL TO THE ISSUER AS TOUNITED STATES AND ENGLISH LAW TURKISH LAW

Clifford Chance LLP Yegin Avukatlık Bürosu10 Upper Bank Street Kanyon Ofis Binası Kat. 10

London E14 5JJ Büyükdere Cad. No. 185United Kingdom Istanbul 34394

Turkey

AUDITORS TO THE ISSUERBaşaran Nas Bağımsız Denetim ve Serbest Muhasebeci Mali Müşavirlik Anonim Şirketi, a member of

PricewaterhouseCoopersSüleyman Seba Cad. BJK Plaza No:48

B Blok, Kat 9 Akaretler34357 Besiktas, Istanbul

Turkey

printed by eprintfinancial.comtel: + 44 (0) 20 7613 1800 document number 4409

Level: 5 – From: 5 – Monday, April 16, 2012 – 11:52 – eprint3 – 4409 Section 11

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